Advice From Experts On Managing Student Loans

Many institutions believe that funding college education by means of student loans seemed a good idea when the system was first implemented. After all, what could be wrong with providing a framework to enable the less well off to enter into and complete a study program of their choice?

Unfortunately, as the old adage says, “The road to Hell is paved with good intentions.” This particular road has led to a situation in which the outstanding student loan debt has climbed to a mind-blowing $1.2 trillion.

Writing in The Nation last March, George Zornick revealed that the average student loan debt held by 25-year-olds has increased 91 percent since 2004. Due to the general economic situation, the problem has worsened recently, with almost one-third of borrowers who have started to make repayment being seriously in arrears.

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Thus far, Congress has not been able to tackle the problem in any meaningful way and has simply tinkered with a few adjustments for new loans only. Those involved in higher education, such as the California-based International Career Development Center (better known as the ICDC College), agree that drastic measures are required to tackle the problem.

That is precisely the reason why a campaign by the Center for American Progress was created last month with the dual aims of formulating radical ideas on how to reduce the current student loan debt burden, and to make college more affordable in the future. The campaign has been named Higher Ed Not Debt, and comprises a coalition made up of a wide variety of interest groups from the spheres of education, labor organizations, and think tanks. Higher Ed Not Debt’s program is quite comprehensive. It proposes to produce extensive reporting and research on the higher education crisis, intends to recruit citizens in at least five states, and push for the election of politicians who will further its policies.

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The campaign was launched at the Center for American Progress and included several big-name speakers such as American Federation of Teachers President Randi Weingarten and Senator Elizabeth Warren. According to Zornick’s report in The Nation, Warren said: “If you’re not rich in America, college costs more. It costs more because you have to borrow the money, and pay and pay and pay. As a matter of federal policy, we’ve penalized those young people by saying ‘You’re going to pay more for your education than people who have the blessing of being born to a family that can pay for it up front.'”

Support for the group’s ideals could come from none other than multi-billionaire Warren Buffet. He proposes to close tax loopholes for the wealthy, and use the money to reduce student interest loan rates. Senator Warren is working with Democratic Senators Dick Durbin, Jack Reed, and Kirstin Gillibrand on a bill that would allow students currently holding loan debt to refinance it.

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Outside of the work being done on Capitol Hill to deal with the overall situation, there are things that students can do for themselves to handle their day-to-day problems. The Webster County Citizen website reported in April 2014 that he said, “It’s critical to teach students how to stretch their loan dollars and avoid money mistakes that can have painful consequences for years or even decades to come.”

The site also listed Sullivan’s suggested tips for helping students to manage their loans and general college expenses:

Create a Budget.
Students must make a budget accounting for all incoming funds and outgoing expenses in order to determine how much money they need to borrow.

Spend Your Money Wisely.
Don’t use student loans for living expenses; use it to cover tuition, books and other necessities. If you save up before going to college, or work to cover day-to-day expenses, your debt will be lower.

Understand Your Repayment.
If students understand what it will take to repay their loans, they are more likely to stick to a budget.

Use Government Loans.
Students who must borrow money for college should use Federal Stafford loans (currently available at 3.86 percent interest) for undergraduates, rather than more expensive private loans.

Set a Debt Maximum.
Students should never borrow more than $8,000 for an associate’s degree or $20,000 for an undergraduate degree.

Don’t Rush into Debt Consolidation.
Before considering the option of debt consolidation, seek out professional advice on whether this option is right for you.

But what about the situation of students who have completed studying and are in the paying back phase? Steve Rhode, a consumer debt expert, wrote a blog in the Huffington Post explaining some options.

Rhode says that by delaying the rapid elimination of student loan debts as soon as possible, years are wasted that are critical to saving for retirement. He argues that it is important to reduce any and all other financial obligations, and make loan payment the priority.

If that means students can’t make other payments, like credit card or other unsecured debt, that’s OK. He even says that taking the drastic step of filing for bankruptcy can clear these other debts.

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Rhode emphasizes that failing to pay student loan debt has serious consequences. Tax return refunds can be intercepted and massive collection fees of up to 20 percent of the balance can be added. The personal credit score will be damaged, and wages can be garnished without going to court. In short, defaulting on student loans can lead to catastrophe.

If the student loan is via a private lender, the picture is bleak. Basically there is no hope, help, or assistance for people that owe private student loans, other than what the loan holders are willing to offer. Deferment or forbearance is a possible option but, while that seems like a solution, it’s not a good one, and usually just makes the situation worse. This is because the interest charged simply accumulates, causing the balance to continue to grow.

If the loan is from the government, the news is marginally brighter. However, entering some of the reduced payment programs can have serious consequences. For example, if the repayments are extended up to 25 years, any debt forgiven at the end of that time is currently treated as income – meaning a massive tax liability.

For its part, ICDC College recognizes the problems inherent in the current student loan system. The institution is increasingly concerned, since its philosophy is to create the best possible studying conditions for its students, with no external distractions. As ICDC says, “We’re committed to the overall success of our students. We want them to be as prepared as possible to tackle their career immediately after graduation without any limitations.”

Many institutions believe that bringing these facts to the attention of potential students will better position young people to succeed in their quests for higher education and a rewarding career.