Recent Associated Press headlines, and an article in May’s issue of Consumer Reports have identified student loans as the next potential head-on collision that Americans will have with their debts in the coming months and years. A few years ago over-extended mortgagors and a loose mortgage lending environment helped to initiate the economic slow-down we have been experiencing. Now some are suggesting that student loan repayment difficulties will be the next debt category to hold up an individual’s, and thus our country’s financial recovery, in the months and years to come.
Student loan debt is right at the $1 trillion dollar mark which now exceeds the amount that Americans collectively owe on their credit cards. The average student loan borrower owes over $25,000, and many owe much more than that. Most student loans are extended with repayment periods from 10 years and on up. 80% of these loans are government backed and the other 20% are held by private lenders. Student loans generally cannot be discharged through a bankruptcy so managing these repayments effectively is essential for every borrower who has a student loan.
Choosing wisely in the first place about where to attend college will be an important decision for anyone planning on using loans to fund all or a portion of their education. It is not recommended to fund all of your education with student loans. Check out the costs of public community colleges, state universities, and private non-profit colleges. Consider attending a two year public community college which will be less costly initially, and then transfer to a four year school after two years to finish up the four year degree. Talk to an academic advisor about credits, and how they will transfer if this is your plan. Be careful about for-profit schools that may have poor graduation and job placement results for their students. According to a 2011 study from the National Consumer Law Center, students from for- profit colleges default on their student loans at a higher rate than other non-profit and public universities.
Before starting school, do the math and figure out how much you will owe by the time you get your degree. Go online and estimate the monthly repayment using the payment calculators at www.GreenPath.com. If you borrow $10,000 each year for four years ($40,000 in debt upon graduation), your payments will be $444 per month at 6% for 10 years of repayment. Consider this in relation to the degree you expect to receive, and pay ranges within the field you intend to study. Guidance counselors and admissions staff should have references for you to be able to review to effectively research income expectations in particular employment fields.
Once you are in school consider ways to keep the amount of student loans that you are using to a minimum. Living at home, working part-time, and applying for scholarships could help you reduce the amount of money you need to borrow to attend school.
Government backed student loans currently give borrowers more repayment options than loans held by private lenders so seek out the government loans as your preference. Students often graduate with a number of smaller loans so consolidating the loans into one or possibly two larger loans usually makes sense. There are a number of repayment options that include extending payments to longer than 10 years, and basing repayment amounts on income to help keep payments as affordable as possible. A newer program called Income-Based Repayment for loans taken out more recently (since July 2009) should also be considered. Also working for certain non-profit or government entities or in certain public service positions might qualify loans for forgiveness after 10 years of repayment. Some volunteer opportunities through Vista and others may give participants a small stipend to apply toward student loan balances in return for short term volunteer opportunities. Information about most of these programs can be found at www.studentloanborrowerassistance.org , www.ibrinfo.org and www.fsa.ed.gov
If you lose your job or can’t find a job after graduation be sure to contact your student loans to request a deferral of your payments if you can’t afford to make them. Don’t ignore these loans as there will be a blemish on your credit report, and long time collection ramifications if you don’t take action to resolve problems quickly. Most student lenders have information on-line on how to apply for deferment and other aid.
GreenPath has a Debt Management Program that can help borrowers make full repayment on all types of debts and help to resume or continue payments on student loan debt. Counselors can help you review your income, expenses, and debt payments to help you find affordable options to get all of your debts paid in full.
Sara Gilbert is Group Manager for the Colorado branch of GreenPath Debt Solutions; a member of the National Foundation for Credit Counseling.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.