Right now, the national student loan debt nears $880 billion, an amount that surpasses the national credit card debt of $826 billion.
On average, a 2011 graduate will have $35,000 in student loan debt, while someone with an advanced degree, such as a master’s or higher, will accrue $80,000 or more in student loan debt–and that doesn’t take into account interest.
It’s a crisis hundreds of thousands of graduates in the U.S. are dealing with, some better than others. One NDSU PhD candidate, when asked how she was coping with her student loan load, responded, “I’m staying in school, probably until I die.”
Others like Fargo native, Lance, who left his comment on a recent Village Family Magazine Facebook thread, is chipping away at his loan month by month. “I pay $130 a month,” he says, an amount he claims he’ll be paying for the rest of his life.
Village Financial Counselor and student loan expert Duane Emmel says no matter how graduates are paying it off, the worst possible way to deal with student loan debt is to ignore it altogether.
“When people have that ‘I’ll worry about it later’ mentality while they’re in college, they’re not necessarily seeing how much those loans add up semester after semester,” Emmel says. “When they graduate and get out there, that’s when the reality hits. Those eight or nine loans of $1,300 suddenly add up to $12,000 or more.”
On average, $12,000 pays for about two years of school at a public institution (this amount doubles when you add in the cost of room and board). The usual amount of time it takes a student to complete her undergraduate degree is five to six years.
A recent NBC Nightly News special report, “Price of Admission: America’s College Debt Crisis,” laid out in simple terms the reason why student debt has reached unprecedented proportions: “Students borrow because they see little choice. A college education is, after all, a key to success. That, it seems, is an article of faith.” (View the entire program at msnbc.com.)
College as a “key to success” not only isn’t guaranteed, but it comes with a hefty price tag as well.
Emmel says it’s OK–even healthy–to have hopes and dreams, but being realistic about how you’re going to get there is also important. “Whatever your passion is, by all means, pursue it. But make sure you have a plan,” he says.
Also be realistic about the type of school you or your children choose to attend, whether that is a state school, private, or vocational institution. Tuition varies by type of higher education, and the return on investment may not always be positive. For example, if your plan consists of private school followed by a low-to-mid salary career in, say, English education, there is a low return on investment, since debt from an expensive, name-brand school will far outweigh a public school teacher’s entry-level salary.
Look at what the job goal is. “This is very important, and you have to be really careful because where you go and what you decide to do determines the amount of financial pressure after all is said and done, Emmel says.
Unfortunately, those dream jobs we all grew up having don’t always come to fruition–no matter where you got your degree. Most graduates who find themselves in the workforce after college are feeling disillusioned by the reality of the workaday world. Never has the professional landscape been more competitive, nor has there been a 9.9% unemployment rate for longer than a year at a time–not since the Great Depression, at least.
Even trickier yet is the fact that student loans are not like other forms of debt, such as a car loan or a home mortgage. There are no consumer protections and there is virtually no ability to refinance. Graduates cannot file bankruptcy for student loans, and the debt lives on–even if you don’t.
Worse than death (well, practically) is if you default on your student loan. Virtually the dirtiest word known to the savings and finance world, default occurs when you ignore loan payments and government loan offices hand over your account to creditors or guarantee offices. From there, the collection agencies can take your tax refunds or garnish your wages.
“In extreme cases,” Emmel says, “these agencies will put so much pressure on you that they will even take out part of your social security check if you’re retired.”
Talk about pressure. Fortunately, there is a way out of default if your loans are through the government, which means a considerable amount of groveling must ensue between the debtor and the government loan agency that initially granted the loans. “They might make you pay higher amounts each month for a while,” Emmel says, but it’s far better than creditors or guarantee offices controlling your take-home pay. “Just stay in contact with the government loan officers, let them know your situation. They’re likely to be much nicer to you if they know what your situation is.”
Before you swear off sending children to college, or you accept a second job as a pizza delivery driver to compensate for your already-existing student loan debt, Emmel says to stop, take a deep breath, and get ready to make a plan.
Like any debt, whether it is student loans, car payments, mortgages, lake home expenses, having a plan and sticking to it is the single-most important component to managing debt and eventually overcoming it.
“First of all, talk to children who are in high school and even younger, and teach them about student loans,” Emmel says. “Only borrow what’s absolutely necessary. College may be a financial struggle because you didn’t take out the maximum, but you’ll be way ahead after graduation.”
It is tempting to take out the maximum amount of loans available each semester, but keep in mind, that money eventually has to be paid back–with interest.
“Prioritize your expenses. Emphasize student loans as a priority after you graduate. Having the right spending plan for your budget is very important,” Emmel says. “You may have to wait to buy a house, but just get that student debt paid off as soon as possible.”
There are many ways federal and private lenders are currently helping indebted graduates manage their payments. From loan consolidation to deferment agreements, knowing what options are available is a complex journey. Here is a brief list of some of the most common loan management plans for both federal and private lending:
Loan Consolidation
Loan consolidation is usually the first step graduates take when they need help with student loan debt. Consolidating loans means that a lender will help you group some or all of your loans into one payment. The benefits of consolidating are lower interest rates and extended repayments.
Unfortunately, you can only consolidate once, and if you choose to consolidate with a private lender, you lose many federal loan perks such as your rights to forbearance, cancellation, deferment, and affordable repayment plans.
Also, federal loans usually have lower interest rates than private lenders.
Deferment and Forbearance
Because many people right out of college can’t afford the minimum payments to their student loans, the federal government has organized ways for graduates to make repayment a bit more manageable. One of the most common ways people stave off repayment, at least until they get into the job market and are making a better salary, is deferment. Deferment postpones payments on a loan, but it’s only allowed under certain conditions. Many graduate students defer their loans so they do not have to pay back any money while they’re continuing their studies.
Forbearance is a postponement of payment on a loan, typically if the borrower doesn’t qualify for a deferment and is unable to make payments due to circumstances such as poor health or a layoff.
Income-Based Repayment and Income Contingent Plans
This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse’s income if you’re married), family size, and the total amount of your Direct Loans.
For more information about repayment plans, visit direct.ed.gov.
What if your loans are privately funded?
Loan offices like Sallie Mae most certainly offer some great perks, like lower interest rates, loan deferment options, and the tempting possibility of releasing a loan’s original cosigner from any obligations.
Like federal programs, private lenders such as Bank of North Dakota, are generally very forgiving and helpful to graduates who are unable to make full payments or can’t pay on time. Many people find this “real person on the other end of the line” hospitality worth it, as dealing with federal loan offices can be impersonal and sterile.
However, private loans cannot be consolidated with federal loans, a definite drawback to taking out any money from private lenders. Private lenders also do not have the same loan forgiveness incentives as federal loan providers.
Loan Forgiveness
Loan forgiveness can be an advantage after 25 years of repayment under the income-contingent and income-based repayment plans. If you are in the right field of work, other plans may provide quicker relief.
The most common loan forgiveness programs include:
For public service sector employees: The borrower will receive full loan forgiveness after ten years in a public service or nonprofit institution. The employee must be employed full-time in a public service job for 120 monthly payments and the loan cannot be in default. Those 120 or more payments made will not be reimbursed. See http://www.finaid.org/loans/publicservice.phtml for a full list of the occupations that qualify as public service positions. Full-time faculty at tribal colleges and universities as well as faculty teaching in high-need subject areas and shortage areas (including nurse faculty, foreign language faculty, and part-time faculty at community colleges), also qualify.
For volunteers: Americorps: If you serve for a year you can receive up to $7,400 in stipends, plus $4,725 to be used toward your loan.
- Peace Corps: Volunteers receive deferments, and may qualify for partial cancellation of certain federal loans.
- Volunteers in Service to America: Provide 1,700 hours of service and receive $4,725.
For military: The Army National Guard offers $10,000 in their Student Loan Repayment Program. Many military and veterans’ programs also offer deferments and loan forgiveness.
For teachers: The National Defense Education Act: Teachers serving in low-income areas of the United States will qualify for 15% loan forgiveness for the first two years, 20% for the third and fourth years, and 30% for the fifth year.
For additional loan forgiveness programs and details, visit http://www.finaid.org/loans/publicservice.phtml.
No matter how much student loan debt you accrue, accepting and taking action toward your debt commitments, sticking to a budget plan, and taking advantage of various federal and private lending offers are crucial components to financial security. If you have questions or would like to set up a financial management counseling session with a Village counselor, please call 800-627-8220 or visit www.HelpWithMoney.org.
