1) Educational debt is a double-edged sword.
With steady and gainful employment becoming relatively scarce and the United States population increasing, more people are having to make tough choices. Many are having to decide between becoming indebted while trying to make a living without a college education, or becoming indebted by taking out one or more student loans in hopes of pursuing a profitable career by earning a college diploma.
On average, college graduates earn approximatly $800,000 more than a high school graduate over a lifetime. Living in a country where a large proportion of consumers enjoy a higher education can be extremely difficult, especially when an individual’s education is not at a level to actively contend in today’s competitive job market. However, fiscally paying off those expensive college skills while making sure both the effort and cost pay off in the long run can be just as challenging.
2) There’s no guarantee student loans will pay off, even if you do.
In our current economy, employment is a fickle thing. According to recent figures released by the US Bureau of Labor Statistics regarding a study which measured unemployment across common educational categories, those with higher education do enjoy a lower unemployment rate. Still, the numbers are not entirely reassuring.
The study focused on the United State’s civilian population aged 25 and over, with the numbers seasonally adjusted for December of 2012. Of those represented, 11,120 people possessed less than a high school diploma and that category evidenced an overall unemployment rate of 11.7%. For 36,663 high school graduates with no college experience the unemployment rate was 8.0%. For 37,397 people who had some college experience or an associate’s degree the unemployment rate was 6.9%; and for people with a bachelor’s degree or higher the unemployment rate was 3.9%.
Although having a college diploma will, in many cases, lead to a better chance of finding suitable employment, it’s definitely not a guarantee.
3) Student loan debt affects all age groups.
Recently, Equifax and The FRBNY Consumer Credit Panel released new figures using data mined from 37 million students. According to the reported numbers, by the 3rd quarter of 2011 consumers under age 30 accounted for 39.6% of borrowers. Ages 30-39 accounted for 26.9% of borrowers, followed by ages 40-49 at 14.8%, 50-59 at 11.8%, ages 60 and over at 5.3%, with 1.7% of age unknown.
Of those 37 million student borrowers, the percentage of students who had at least one past due student loan account balance registered at about 5.4 million borrowers. When categorized by age group, ages 30 to 39 accounted for the highest amount at 34.2% of past due student loans; under 30 years old for 25%, ages 40 to 49 at 23.1%; ages 50 to 59 at 12.1%; ages 60 and over at 4.8%; with 0.8% of unknown age.
Although arguably the largest portion of student loan debt does belong to students under the age of 30, the data clearly shows that it affects all generations.
4) A little transparency could see us through.
One of the biggest issues about student loan debt is how very little counseling students applying for educational loans receive along with the funds. Current law requires that higher education institutions provide entrance counseling to students but it’s not strongly enforced and often doesn‘t occur at all, leaving many borrowers vague as to the enormity of their responsibilities and debts. Also, favoritism and bribery are still rampant between educational institutions and private lending banks, causing colleges to encourage students to borrow more from private lenders before or even instead of exhausting their cheaper federal loan options.
Multiple attempts have been made to pass laws which would require private lenders and higher education institutes to follow the rules more closely or face stricter penalties, but none have been entirely successful. Sen. Christopher Dodd [D-CT] sponsored the Private Student Loan Transparency and Improvement Act of 2007 which was introduced to Congress but has not been enacted. In 2010 the Christopher Bryksi Student Loan Protection Act sponsored by Sen. Frank Lautenberg [D-NJ], which sought to release families from private student loan debt if the borrower dies as well as greater loan transparency, passed House vote but not yet the Senate.
Others include but are not limited to the Student Loan Accountability and Disclosure Reform act sponsored by Sen. Michael Enzi [R-WY]; Financial Aid Accountability and Transparency Act of 2007 sponsored by Rep. Howard “Buck” McKeon [R-CA25]; Private Student Loan Disclosure Enhancement Act of 2007 sponsored by Sen. Sherrod Brown [D-OH]; Student Information Means a Positive Loan Experience Act of 2007 sponsored by Sen. Michael Enzi [R-WY]; and A Bill to Provide Student Borrowers With Basic Rights, Including The Right To Timely Information About Their Loans And The Right To Make Fair And Reasonable Loan Payments, And For Other Purposes sponsored by Sen. Hillary Clinton [D-NY].
5) Debt collection is a thriving, driving industry
According to data from the Department of Education, in 2011 collection agencies working for the government earned over $1 billion dollars in commissions by retrieving payments for delinquent student loans. While private lenders can reasonably expect to recoup approximately $.20 to $.60 for every borrowed dollar, the federal government has a success rate of about $.80 to the dollar. However, federal loan debt is commonly forgiven should a borrower die before total payment has been made, while private lenders have the legal right to continue attempting to recover the owed funds from next-of-kin or co-signers indefinitely. These agencies have nothing to lose and everything to gain by hounding their clients’ delinquent borrowers.
Beyond the phone calls and demand letters, there are some serious financial repercussions to not paying delinquent student loan bills. These include but are not limited to garnished paychecks and income tax refunds as well as difficulty in taking out new loans or purchasing a home.
Additionally, there are many options which will help with student loan debt such as the Income-Based Repayment (IBR) plan, deferment or forbearance options and debt consolidation, but sadly these alternatives are not widely advertised. There’s varied speculation as to why that might be but for students struggling with unmanageable debt these routes may be of some assistance, should they be lucky enough to learn about them. Learn more here paymystudentloans.com
6) Once you’re in, you’re in.
Student loans are notoriously difficult to get out of paying, though they haven‘t always been. In 1978 legislation took effect that made it so that federal student loans and those taken out with non-profit educational institutions couldn’t be discharged by declaring bankruptcy until after repayment had been made for 5 years or if the borrower could prove that repayment of the student loans would cause undue hardship. In 1984 the Bankruptcy Amendments and Federal Judgeship Act added all private student loans to the list. In 1990 the required loan repayment period before bankruptcy could discharge any student loan was amended to 7 years. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act which made it so that no student loan could be discharged, even under bankruptcy, unless the borrower could prove severe disability.
Having student loans discharged on the basis of being permanently disabled is extremely difficult and requires extensive proof, effort and time. Federal student loans are waived upon the borrower’s death, but private loans are another story and are not required by law to be discharged. The way private loans are handled in the event of the borrower’s death change according to individual lender’s policies and are not currently governed by law.
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