In our last post, we detailed The Student Loan Problem: Drowning in Debt by Degrees. With outstanding U.S. student loan debts now totaling over $1 trillion dollars, and with nearly 15% of borrowers delinquent on one or more student loan accounts, it seems that education debt has indeed become “the next bubble.”
If your student debt feels like a heavy burden, you are not alone. Sixty-six percent of bachelor’s degree recipients have borrowed from the government or private lenders, with average loan balances of roughly $24,000. But that is only part of the story.
An additional (undetermined) percentage of graduates have relied on family members who borrowed on their behalf or lent them money to obtain their degrees. Many parents who have taken a hit in the housing market and who may be approaching retirement nervously co-sign debts for children in the hopes that a degree will afford them financial independence. Yet, ironically, unprecedented numbers of 2011 college graduates have moved back home because they cannot afford to support themselves and make their student loan payments.
Another result of rising education costs is that college graduates are also taking on more non-student debt. When loans, grants, summer jobs and other resources don’t cover expenses, students get “resourceful” with credit cards. And although the Credit Card Act of 2009 curtailed aggressive marketing of “easy credit” to students, a recent survey showed that the average college student had more than $4,100 in credit card debt, with nearly one in five carrying balances greater than $7,000. And of course, borrowers who fail to land well-paying positions after graduation are likely to increase credit card usage.
Bad News, Good News
The bad news is that there are few situations that can make student debt disappear or even shrink a dime. Barry James Dyke, author of The Pirates of Manhattan II: Highway to Serfdom gives the hard facts:
“Student loans are a form of indentured servitude as student loans cannot be discharged in bankruptcy. Student loans do not die with death. Collection agencies can call day and night to collect student loan debts. Garnishment to pay student loan debt is common. Students are not getting enough well-paying jobs to pay back these enormous loans, yet The Department of Education through the Department of Treasury can attach tax refunds to pay off student loans. What is more… the Bankruptcy Abuse and Consumer Protection Act of 2005… turned student loans into non-dischargeable debt.”
Except in very specific situations, student debt loan balances cannot be forgiven, or the principle reduced. (The specific situations include partial Stafford Loan forgiveness for those who serve in the Peace Corps, AmeriCorps, and Vista, the National Army Guard, or teachers that serve students from low-income families.)
Programs that may provide temporary assistance in certain situations are loan deferral and forebearance. Deferral allows the borrower to stop or reduce payments for reasons such as military service, re-enrollment in school, or economic hardship such as unemployment. A forbearance plan is sometimes offered to graduates who do not qualify for deferral. Forbearance can provide temporary relief or reduction of payments during difficult times, though it will not prevent interest from continuing to accrue.
However, until recently, there was little that could be done for the vast majority of graduates facing many years or even decades of large student loan payments. For those who qualify, student loan consolidation can still save borrowers thousands, if not tens of thousands of dollars.
There are currently three kinds of student loan consolidation, FFEL (Federal Family Education Loan) Consolidation, Special Direct Consolidation, and (traditional) Direct Consolidation. (Our partners at FiscalFitnessJourney.com can help you determine your eligibility and choose the appropriate one.) Though consolidation will not help a borrower reduce the balance of their student loans, it may help them:
1. Lower payments, sometimes by as much as 50%. This is accomplished by lowering interest rates, resulting in lower payments, not simply stretching payments out over a longer period of time.
2. Simplify multiple payments into one monthly payment to one lender. With only one monthly bill, it is easier than ever for borrowers to manage their debt. The U.S. Department of Education becomes the one lender for all loans included in a Direct Consolidation Loan.
3. Utilize flexible repayment options, including an Income Contingent Repayment Plan. These plans are designed to be flexible to meet the different and changing needs of borrowers. With a Direct Consolidation Loan, borrowers can switch repayment plans at any time.
4. Qualify for varied deferment options. Borrowers with Direct Consolidation Loans may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current Federal education loans, a Direct Consolidation Loan may renew many of those deferment options.
5. Pay No Minimum or Maximum Loan Amounts. The program can be used whether the borrower owes $10k or $100k.
Do you need help wading through the Student Loan maze?
Do you have significant consumer debt in addition to student loan payments?
Would a few hundred extra dollars a month make a big difference for you and your family?
If you are answering “yes” to any of the above, then contact our subsidiary Partners 4 Fiscal Fitness for a consultation. They may be able to help you simplify your debts and payments and get on the Pathway to Prosperity. There is no charge for the initial consultation, and approval for student loan consolidation and our Fiscal Fitness program (not required for student loan consolidation) is not credit-dependent. Just call 877-865-7111, and Partners 4 Fiscal Fitness will help you weigh your options.