With Student Loan Debt at an All-Time High, What Are Options for Relief?
Posted By Donna Fuscaldo on May 15, 2015 at 10:58 am
It wasn’t too long ago that you could work a summer job to pay for college. These days, however, the chances of not needing a student loan for some or all of your higher education is pretty slim.
Student loans are plentiful, particularly among private lenders. And paying them back is becoming increasingly hard to do, creating a situation where millions of people are on the brink of bankruptcy because of outsized debt.
“Student debt has doubled over the past years,” says Mark Huelsman, senior policy analyst at Demos, a public policy think tank. “It could really impact the economy going forward and is certainly impacting the financial situations of recent graduates.”
Consider this: According to information services company Experian, as of September 2014, forty million people have at least one student loan, with the average loan amount increasing 84% since 2008. Student loan debt has surpassed home equity loans and lines of credit, credit card and automotive debt. What’s more, Experian found that on average there are 3.7 open student loans per consumer, with the average balance on these loans standing at $29,000. Currently, student loan debt is at an all-time high of $1.2 trillion, with 39% or $417 billion in deferment and 61% or $727 billion in repayment.
Because of the ever rising costs of higher education, many people can’t go to college without taking on some form of student loan debt. Those that are forgoing debt typically have to attend part-time.
A bachelor’s degree recipient has a seven in ten chance of taking on a loan to graduate, while nine in ten Pell Grant recipients graduate with some type of debt. About 64% of students who attend a public school will graduate with debt. That stands at 42% for students pursuing a two year or associates degree. Of the student loan borrowers, Demos found 29% drop out before graduating, creating a more serious financial problem when the deferment period is over and they have to start paying the loans back. As a result, many of the loans become delinquent, or the borrower defaults.
Bankruptcy rarely a solution
Many people struggling with student loan debt may think a bankruptcy filing is the best way out, but it turns out student loans aren’t so easy to forgive.
“Student loan debt can be discharged, but it’s extremely hard to do,” says Kathleen Michon, editor at Nolo, a legal website. “When Congress overhauled the bankruptcy laws in 2005, they set up new standards that put student loans separate from any other unsecured debt.” As a result, a person wanting to get student loan debt forgiven not only has to meet stringent criteria but also has to file a separate lawsuit within bankruptcy court. That costs additional money – something someone filing for bankruptcy likely doesn’t have. “In the past, almost no one could meet the standard unless you were elderly and disabled and it’s clear you would never work again,” says Michon, noting that some courts have become more open minded about the undue hardship standard.
Federal and state programs help select borrowers
Bankruptcy may not be a viable option for the masses, but there are programs out there that can help chip away at some of the debt. The problem, however, is that many former students aren’t aware of what’s available. Recently, Senator Elizabeth Warren of Massachusetts highlighted the issue in a letter to U.S. Department of Education Secretary Arne Duncan, expressing concern that students aren’t receiving enough information and about the relief options, particularly at Corinthian Colleges, found by federal and state regulators to be engaging in unfair and deceptive practices to get students to enroll and borrow money.
As it turns out, there are actually over 90 different student loan forgiveness programs available, many of them state, federal or employment based, says Betsy Mayotte, director of regulatory compliance at the non-profit organization American Student Assistance. Take the Public Service Loan Forgiveness Program, or PSLF, for example. Individuals who work full-time in a public service job can qualify for forgiveness of the remaining balance of their Direct Loans after they make 120 payments and while they are employed full-time by certain public service employers. Another government-run program is the Teacher Loan Forgiveness program, which can forgive as much as $17,500 of subsidized or unsubsidized loans for full-time teachers in low-income elementary or secondary schools who have worked there for five consecutive years.
There are also student loan forgiveness programs based on borrowers’ income. For instance, the government’s income-based repayment program gives qualifying borrowers reduced monthly payments and forgives remaining balances after 25 years.
Be informed before borrowing money
Mayotte says one of the best ways to ensure you don’t end up with unaffordable student loan debt is to choose which college and university to attend based on how much you can afford to pay back once you graduate. It’s also a good idea to look up the starting salaries of your chosen career to make sure you will earn more than you will owe. “You should look at several colleges and see what the alternatives are that will give you a similar degree at a lower cost,” says Mayotte, pointing to attending a community college for two years to keep expenses down. “When you are taking on student loan debt, make sure you understand the terms and what the monthly payment is.”
Image: Flickr user John Walker