Yes, it really IS possible
to solve your student loan
There are approved programs available to
help you with your Student Loan needs!
People who are considering Student Loan assistance need help. They also need resources and services they can count on. People interested in seeking assistance with their student loans should research the myriad government approved programs and pay plans that are designed to provide financial assistance to those struggling with their current student loan debts and payments. Student Loan Center has put together this brochure as your guide to provide you with all the information you need to obtain the help you seek. You can also speak directly to a Student Loan Advisor with Student Loan Center to go over your options and payment plans at no cost or obligation. Having highly trained help for your Student Loan needs is essential. There are many programs available. Student Loan Center is here to help.Pay As You Earn Repayment Plan
On December 21, 2012, the Department of Education announced the availability of the “Pay As You Earn
and depending on when you have taken out your federal student loans, you may qualify for the “Pay As You Earn Repayment Plan.” The plan helps keep your monthly student loan payments affordable based on your income and usually has the lowest monthly payment relative to the countless other aid programs available.
Direct Consolidation Loan
Direct Consolidation Loans allow borrowers to combine one or more of their federal education loans into a new loan that offers several advantages.
What are the benefits of a Direct Consolidation Loan?
• One Lender and One Monthly Payment
With only one lender and one monthly bill, it is easier than ever for borrowers to manage their debt. Borrowers have only one lender, the U.S. Department of Education, for all loans included in a Direct Consolidation Loan. • Flexible Repayment Options
Borrowers can choose from multiple plans to repay
You are not alone.
We may already have the exact solutions for your student loan problems.
Student loan debt can be an overwhelming problem that over 37 million people throughout the
United States must deal with on a day-to-day basis. Unfortunately, student loan debt can add to your
overall financial stress rather quickly unless you take pro-active measures. One way people can control
their finances and take advantage of the countless programs available to assist with their student loan
debt is through consolidation or payment restructuring plans. According to the U.S. Department of
be flexible to meet the different and changing needs of borrowers. With a Direct Consolidation Loan, borrowers can switch repayment plans at anytime.
• No Minimum or Maximum Loan
There is no minimum amount required to qualify for a Direct Consolidation Loan!
• 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. In addition, borrowers may be eligible for additional deferment options if they have an outstanding balance on a FFEL Program loan made before July 1, 1993, when they obtained their first Direct Loan.
• Reduced Monthly Payments
A Direct Consolidation Loan may ease the strain on a borrower’s budget by lowering the borrower’s overall monthly payment. The minimum monthly payment
on a Direct Consolidation Loan may be lower than the combined payments charged on a borrower’s federal education loans.
• Retention of Subsidy Benefits
There are two (2) possible parts to a Direct Consolidation Loan: Subsidized and Unsubsidized. Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized part of a Direct Consolidation Loan.
When repaying a Direct Consolidation
Loan, you may choose from multiple
repayment plans with various terms.
• Standard Repayment Plan:You will pay a fixed amount each month until your loan(s) are paid in full. Your monthly payments will be at least $50 for up to 10 to 30 years, based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans.
• Graduated Repayment Plan:
Your minimum payment amount will be at least equal to the amount of interest accrued monthly. Your payments start out low, and then increase every two years for up to 10 to 30 years, based on your total education indebtedness. Generally, the amount you will repay over the term of your loan will be higher under the Graduated Repayment Plan than under the Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase. • Extended Repayment Plan:
To be eligible, your Direct Loan balance must be greater than $30,000 and you will have up to 25 years to repay your loan(s). You have two payment options:
• Fixed Monthly Payment Option — You will pay a
fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50. Repayment under this plan will result in lower total
interest paid when compared to graduated plans with similar terms.
• Graduated Monthly Payment Option — Your
minimum payment amount will be at least $50 or the amount of interest accrued monthly, whichever is greater. Your payments start out low, and then increase every two years. Repayment under this plan may provide lower initial monthly payment, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase. • Income Contingent Repayment Plan (ICR): Your monthly payments will be based on annual income, Direct Loan balance and family size, and are spread over a term of up to 25 years. Due to the tremendous popularity of this plan, additional details of this program are provided in a separate section of this guide (see following page).
• Income-Based Repayment Plan (IBR): Your monthly payments will be based on annual income and family size, and spread over a term of up to 25 years. You must be experiencing a partial financial hardship to initially select this plan and once you select this plan you cannot change to any other plan except the Standard Plan. Due to the tremendous popularity of this plan, additional details of this program are provided in a separate section of this guide (see following page).
What are the repayment plans?
The Direct Consolidation Loan Program offers standard, graduated, extended and income
contingent repayment plans which may lower your monthly payments.
The ICR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Income (AGI), loan balance and family size. Income is obtained from an ICR Plan & IBR Plan Alternative Documentation of Income Form submitted by you. As an alternative to having to obtain your (and your spouse’s, if applicable) AGI directly from the IRS, you may submit a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ) or a 4506T IRS transcript. Monthly payments are adjusted annually to reflect inflation, family size and income.
NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, the supporting documentation that you submit for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount.
Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization.
In such cases, the unpaid interest is capitalized and added to the principal balance once per year. The amount added to the principal balance will never exceed 10 percent of the original Direct Consolidation Loan amount. Once this capitalization limit has been reached, interest continues to accrue but is not capitalized. The capitalization limit does not apply to interest that accrues during deferment or forbearance.
Under this plan, it is possible you will not make
payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. Alternative Documentation of Income
Alternative documentation of income is required for Direct Consolidation Loan borrowers if their underlying loans were in the first or second year of repayment when they were consolidated. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.
The IBR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Incomes (AGI), family size, and you must be experiencing a partial financial hardship to initially select this plan. Income is obtained from the Internal Revenue Service (IRS) or from an ICR Plan & IBR Plan Alternative Documentation of Income Form submitted by you. As an alternative to having to obtain your (and your spouse’s, if applicable) AGI directly from the IRS, you may submit a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ). Monthly payments are adjusted annually to reflect a change in income, a change in family size, or changes to your partial financial hardship status.
NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, the supporting documentation that you submit for alternative documentation of income will be used to calculate
taxable gross income in lieu of AGI which may result in a higher monthly payment amount.
Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. If your payment does not cover all of the interest accumulating monthly on your Direct Subsidized Loans or Direct Subsidized Consolidation Loans, you will not be charged the remaining portion of the interest on those loans for a period not to exceed three consecutive years from the time you begin repayment under the IBR Plan. Under this plan, it is possible you will not make
payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. NOTE: The IBR Plan is not available for parent Direct PLUS Loans, Direct PLUS Consolidation Loans or Direct Consolidation Loans that repaid parent Direct PLUS
Income Contingent Repayment (ICR) Plan
Who is eligible for a Direct Consolidation
Loan?
To qualify for Direct Consolidation Loans, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.
Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with their current loan holder(s) or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan or Income Based Repayment Plan. Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.
Can I obtain a Direct Consolidation Loan
if I don’t have any Direct Loans?
Yes, borrowers without any Direct Loans may be eligible
for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Can I consolidate a PLUS Loan?
Yes, PLUS Loans can be consolidated into a Direct
Consolidation Loan.
Can I consolidate a Perkins Loan?
Yes, it is possible to consolidate Perkins Loans into a
Direct Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Direct Loan Program will be included in the unsubsidized portion of the Direct Consolidation Loan.
Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan. While the borrowers gain the benefits of the Direct Consolidation Loan Program, they also lose the benefits associated with the Perkins Loan Program. We recommend that you consider the following points prior to making a decision:
• Perkins Loans are eligible for additional cancellation benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.
• Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.
• Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Direct Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.
• Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.
Can I consolidate my loans if I am
enrolled in school?
Yes and No. Effective for Direct Consolidation Loan
applications received on or after July 1, 2006, borrowers who are enrolled in school cannot consolidate loans that are in an in-school status. These are loans that have not yet entered or used up the 6-month grace period entitlement. Loans or Federal Family Education Loan Program
PLUS Loans made to parent borrowers. If you choose to include any ineligible loans, the resulting new Consolidation Loan cannot be repaid under the IBR Plan. Alternative Documentation of Income
It is recommended that you provide Alternative Documentation of Income with your consolidation application. If you submit the income information with the application and we determine you are qualified for
Borrowers still can consolidate loans that are in grace, repayment or deferment.
Borrowers can add loans to an existing consolidation for up to 180 days after the Direct Consolidation Loan was first disbursed. If more than 180 days has passed, borrowers can apply for a new Direct Consolidation Loan. The new consolidation loan can include the original Direct Consolidation loan and must include another eligible outstanding federal education loan.
Example: A borrower who has education loans stopped attending school for a year and the loans used up the 6-month grace period and entered repayment. The borrower returned to school and obtained a new loan. While enrolled, the borrower applies for a Direct Consolidation Loan. The Direct Consolidation Loan can include the first group of loans the borrower received, but not the newly received loans. Once the borrower leaves school again he or she can add these new loans to the existing Consolidation Loan or submit a new Direct Loan Consolidation application to combine the original Consolidation Loan and the other remaining loans.
Can I consolidate an existing
consolidation loan?
Yes, under three conditions:
• Borrowers can consolidate existing consolidation loans into a new Direct Consolidation Loan if they include at least one other FFEL or Direct Loan into the new consolidation loan.
• Borrowers can consolidate a single Federal
Consolidation Loan if the loan is in default status or has been submitted to a guaranty agency for default aversion by the loan holder.
• Borrowers can consolidate a single Federal Consolidation Loan if they intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Can I consolidate my loans that are in
grace?
Yes, Borrowers who consolidate loans that are in
grace may receive a lower interest rate on their Direct Consolidation Loans if they are consolidating variable rate loans. However, once grace status loans are
consolidated borrowers lose any remaining grace period. Borrowers receive their first bills within 60 days after the new Direct Consolidation Loan is made.
The timing in which an application is submitted is important:
• Loans first disbursed on or after July 1, 2006 have fixed interest rates. While borrowers with fixed interest rate loans can consolidate while in grace,
there is no benefit to do so since the interest rates for in-grace and in-repayment are the same. • Borrowers with variable interest rate loans should
apply for Direct Consolidation Loans while their loans are in the grace status in order for them to receive the possible interest rate benefit.
• Since repayment begins within 60 days of the day the Direct Consolidation Loan is made, borrowers should not apply too early in their loans’ grace periods; otherwise borrowers lose any remaining grace period. For example, if a borrower’s loans are consolidated during the second month of grace, they would begin repayment within 60 days, thus forfeiting the remaining portion of the grace period. Therefore, borrowers should wait until about half-way through the 6-month grace period before applying for a Direct Consolidation Loan.
What special conditions apply if I am in
repayment and just consolidating now?
Borrowers in repayment who want to consolidate their federal education loans should continue making payments until their loan holder notifies them that their loans are paid in full.Can I consolidate jointly with my spouse?
No, Effective July, 1 2006 a married couple may no longer
obtain a Direct Consolidation Loan as joint borrowers.
Can I Consolidate a Defaulted Loan?
Generally, federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:• Agree to repay the loan(s) under either the Income Contingent or Income Based Repayment Plan. OR
• Make satisfactory repayment arrangements with the current loan holder(s).
If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, they may want to consider another option: loan rehabilitation. Borrowers should contact their loan holders to obtain more information about this option. Borrowers cannot consolidate defaulted loans under these conditions:
• If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed). • If they are trying to consolidate defaulted Direct
Note: Borrowers with defaulted FFEL or Direct Loan
Program loans may be liable for collection costs incurred to collect the loans. If the holder of the defaulted loan, which may be either the U.S. Department of Education or a guaranty agency, retains a collection agency to collect defaulted loans, charges imposed by the collection agency may be added to the amount borrowers owe. This means that the amount of the Direct Consolidation Loan may include collection costs of up to 18.5% of the principal and interest outstanding on the defaulted loan. For defaulted Perkins Loans and health professions loans, collection costs may equal as much as the amount owed at the time the defaulted loan is paid off through consolidation.
Can I change repayment plans?
Yes. Most borrowers may change repayment plans at
any time. However, borrowers who are required to repay under the ICR plan must make three consecutive monthly payments before changing to another plan. There is no limit to the number of times borrowers may change plans.
• A borrower may change to the ICR plan at any time. After the change, the borrower’s repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. (The ICR Plan is NOT available if you have a Direct PLUS Consolidation Loan(s) made before July 1, 2006 and/or a Direct PLUS Loan(s). However, you are eligible to repay any Direct Consolidation Loan(s) made on/after July 1, 2006 under the ICR Plan even if it includes a PLUS Loan(s).)
• A borrower may change to the IBR plan at any time. After the change, the borrower’s repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. If you choose to leave the IBR Plan at any time, your account will be placed on the Standard repayment plan. You cannot change to any plan other than Standard at any time after being on the IBR repayment plan.
• A borrower may change to another plan as long as the new plan has a repayment term that is longer than
the amount of time the borrower has already spent in repayment. The new repayment term is determined by subtracting the amount of time a borrower has spent in repayment from the term allowed under the new plan.
How long does it take to consolidate my
loans once I submit my application?
The consolidation process generally takes 60-90 days. Using Student Loan Center can reduce the amount of time it takes to consolidate a borrower’s loan(s). Call today to speak to a qualified Student Loan Advisor with Student Loan Center for more details. The consultation is free.When can I expect my first monthly
payment to be due?
Borrowers will receive an initial billing statement from the Direct Loan Servicing Center within 60 days of the first disbursement of their Direct Consolidation Loan. Payments are due monthly.
How do I make payments?
Borrowers receive monthly billing statements from the Direct Loan Servicing Center, unless they enroll in the Electronic Debit Account (EDA).
Borrowers receive a 0.25 percent discount on their interest rate for as long as they continue to make payments using EDA.
Borrowers must keep the Direct Loan Servicing Center informed of changes of address and to their names. Borrowers are responsible for making payments on time regardless of whether they receive billing statements. Borrowers should send payments to:
U.S. Department of Education Direct Loan Payment Center P.O. Box 530260
Atlanta, GA 30353-0260
Can I prepay on my loan?
What are the consequences of defaulting?
Borrowers who fail to make a payment on time are considered delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:• The Department of Education can immediately demand repayment of the total loan amount due. • The Department of Eduction will attempt to collect
the debt and may charge collection costs.
• The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers’ credit ratings and, making it difficult for borrowers to make purchases such as cars or homes.
• Borrowers with loans in default are ineligible for Title IV student aid.
• Borrowers with loans in default are ineligible for deferments
• The Internal Revenue Service can withhold borrowers’ Federal income tax refunds. • Borrowers’ wages may be garnished.
It is important that borrowers with Direct Consolidation Loans stay in touch with the Direct Loan Servicing Center. Default can occur when borrowers fail to keep the Direct Loan Servicing Center up to date on address and name changes, causing billing statements to go astray. In addition, the Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for a deferment or forbearance, or change repayment plans. Speak to a Student Loan Advisor at Student Loan Center for a no cost, no obligation analysis of your student loan needs.
What solutions are available to assist with
a defaulted loan?
Rehabilitation or Consolidation?
There are many benefits to rehabilitating a defaulted loan before consolidation. If you consolidate a defaulted loan without rehabilitating it, your credit record
continues to show a default status on the loan. This is true even after the consolidation loan pays off the defaulted loan in full.
• Consolidating a defaulted loan will result in your credit report bearing the notation that the loan was in default but then “paid in full.” This notation will remain on the credit report for up to seven years. While a “paid in full” notation is preferable to an unpaid default, there is still the possibility that lenders will deny you future credit, such as mortgages, auto loans, or credit cards because of this notation.
However, if you rehabilitate a defaulted loan before consolidating it, the loan holder will update your credit record to no longer reflect the default status of the rehabilitated loan(s).
• Rehabilitating a defaulted Direct Loan or FFEL loan requires that you make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period. Rehabilitating a defaulted Perkins loan requires twelve (12) on-time monthly payments. Contact your loan holder to obtain additional rehabilitation terms and conditions for your loan type.
Keep in mind that if you default on your loan, you are liable for any collection costs incurred to collect the loan. If you pay off the defaulted loan by taking out a Consolidation Loan, the amount you borrow must be enough to pay off your defaulted loan, including principal, interest, and collection costs. This means that the amount of the new loan may need to be up to 18.5% larger than the principal and interest outstanding on your defaulted loan.
Both rehabilitation and consolidation will reinstate your eligibility for additional Federal student aid under Title IV of the Higher Education Act (Pell Grants, FFEL and Direct Loans etc.)
If you are currently facing the stress of defaulting on your student loan, help is available. Free advice from a Student Loan Advisor is available from Student Loan Center. Call today: 888-203-2250.
Default Avoidance Assistance for
Borrowers is Available
Our final words of advice:
Experience and Professionalism are
the Keys
Student Loan Center has friendly and knowledgeable Student Loan Advisors eager to assist with your Student Loan needs. We have assisted thousands of student loan borrowers apply and qualify for government approved programs that are designed to ease the financial stress many are facing when dealing with their student loan payments.
For some people, a reduction in their overall student loan payment is all they need to get back on stable financial ground again. It’s never too late to apply and qualify for payment relief programs that are available today. Contact a Student Loan Advisor at Student Loan Center for a free, no cost or obligation consultation. A 10 minute phone call is all you’ll need to determine what payment programs are available so you can stop stressing and start saving!
Are you ready to decrease your stress
level or not?
At this point in time you’ve undoubtedly given your present financial situation a lot of thought. Our goal in presenting this brochure of information has been to provide you with accurate, up-to-the-minute information regarding your various options so you can now make a decision on the best ways to tackle your outstanding student loan debt.
But now you’re really going to have to do some hard thinking about how you want the next chapter of your financial future to unfold. Are you going to continue to let the stress of your outstanding student loan payments worry you sick and keep you up at night; unable to focus on anything else? Or are you going to take the bull by the horns and take action toward solving your burdensome student loan debts once and for all? Remember, nothing will happen unless you decide to do something about your current financial situation. Your student loan obligation will still be there when you wake up tomorrow morning. It will not go away. So it’s your call now. Either continue down the same path or begin taking action to get your financial situation straightened out so you can relax (at least a little bit) and start enjoying life again.
Make no mistake. We know this is a difficult decision for you. No one ever thinks they are going to have financial challenges themselves. These types of things are only supposed to happen to “other people.” But we give you a lot of credit, because many people would just stick their head in the sand and pretend everything is just fine… when it really isn’t.
U.S. Student Loan Debt by the Numbers:
• Student loan borrowers in the US:
37 million
• Federal student loans owed directly to the US
government:
$864 billion
• Student loans owed to private lenders, like banks:
$150 billion
•
Private student loans that came from the same seven private lenders:
87%
• Borrowers who take out
more than $100,000 in student loans:
3%
• Borrowers who owe less than $6,000:
25%
• Average
student loan debt owed in the US:
$24,301
• Money borrowed by students for advanced degrees:
$300 billion
• Average student loan debt for the class of 2011, as of 2013:
$26,600
• Average
student loan debt for the class of 2010:
$25,350
• Average starting salary for 2012 college graduates:
$44,482
• Interest rate on federally subsidized Stafford loans, as of 1 July:
6.8%
• Graduate
students who signed up for federally subsidized Stafford loans before 2012:
30%
• Date that federally
subsidized Stafford loans became unavailable to graduate students:
July 2012
• Interest rate charged
on some loans by Sallie Mae:
9.25%
• Average default rate on loans for bachelor’s degrees:
9.3%
• Student debt owed in the US:
$1.2 trillion • Borrowers who complained their lender
April 2013
• Average default rate on loans for associate’s degrees or certificates:
17.6%
• Default rates for
students with advanced degrees:
6.1%
• Default rates on student loans that causes a college or
university to become ineligible for federal student loan subsidies:
30%
• Institutions with
higher-than-average default rates that also grant associate’s degrees or certificates:
75%
• Unemployment
rate for college graduates:
4.6%
• Student loan borrowers under the age of 30:
14 million
•
Americans with bachelor’s degrees working minimum-wage jobs:
280,000
• Americans with advanced
degrees working minimum-wage jobs:
37,000
• Percentage of 2010 college graduates working jobs
that require less than a high school diploma:
38%
• Percentage of college-age students who are
choosing less selective colleges in order to take on less debt:
41%
• Number of Americans age 50 and
older who account for roughly $149 billion in student loan debt:
6.8 million
• Number of Americans
Total Student Loan Debt: $1.2 Trillion
Two-thirds, that’s right, two-thirds of students
graduating from American colleges and universities are graduating with some level of debt. How much? According to The Institute for College Access and Success (TICAS) Project on Student Debt, the average borrower will graduate $26,600 in the red. While we’ve all heard the screaming headlines of graduates with crippling debt of $100,000 or more, this is the case for only about 1% of graduates. That said, one in 10 graduates accumulate more than $40,000.
It’s a negative sum game for both student-borrowers and the economy. According to the Consumer Financial Protection Bureau, student loan debt has reached a new milestone, crossing the $1.2 trillion mark — $1 trillion of that in federal student loan debt.
This pushes student loan debts to dizzying new heights, as they now account for the second highest form of consumer debt behind mortgages. With the federal debt at $16.7 trillion, student loan debts measure at 6% of the overall national debt. This is no small figure, and national debt carries many consequences including slowing economic growth (translating into fewer jobs being created) and rising interest rates. Capital will not be as easy to access.
The majority of student loans are backed by the U.S. government through banks like Sallie Mae, or since 2010, by the Department of Education. Translation: the creditor in this scenario is the U.S. tax payer, who if students default on these loans will be subject to carry the burden of these loans.
Federal Loans are Safer than Private
Lauren Asher, president of TICAS, a nonpartisan policy group, says that government loans are the safest type of loans to take while financing education. “Federal student loans are the best way to borrow if you have to in order to get through.” She identifies a lack of information as a major problem in the debt game as she identifies growing private loan debt as a major problem. “Half of those taking out private loans have not maxed out on federal loans.” Why the preference for federal loans with federal debt being such a hot topic? “Federal loans are subject to income based payback, fixed interest rates, and take nine months to default on, making them a much safer loan for students to take,” Asher explains. Conversely, private loans have done away with late fees, and in the fine print have redefined the right to claim default on the loan after missing a single payment. Default is a one way ticket to bad credit. “Any ding in credit rating can affect [a borrower] more now than ever, even employment,” says Asher.Asher argues, however, that higher education “is still the best investment in your future.” The college degree is getting more and more weight as political leaders are calling for upwards of 60% national higher education attainment by 2025. And the demand for higher education is increasing. “When the economy is down, more people turn to higher education to get an edge in the job market, but have less money to finance it,” explains Asher.
Debt and Community Colleges
If you are under the impression that only four-year schools are subject to debt, think again. Of those students completing an associate’s degree from a community college in 2008, 38% graduated with debt. In the for-profit sector of two-year degrees, over 90% have debt. The average debt load at a public two-year institution is $7,000.
How the $1.2 Trillion College Debt
Crisis Is Crippling Students, Parents
One community college, Henry Ford Community College in Dearborn, Mich., is offering a one-time student debt amnesty program that will allow students who owed a balance prior to or including the winter 2012 semester to afford to return to the college. The program “offers the opportunity for students to pay 50% of what is owed on their account to settle their debt with the College.” Will this become a norm within the two-year degree space as more and more debt is accumulated?
The Cost of Debt
Of this $1.2 trillion in student debt, about $1 trillion is in federal student loans. This figure does not tell the full story, however, as the $1.2 trillion does not include funds students must divert away from retirement savings, parent borrowing or credit card debt. President Obama is expected to sign the bipartisan Senate bill to tie federal student loan interest rates to the market this week. On one side, this will reverse the interest rate hike that went into effect on July 1, lowering the current rates for undergraduate students from 6.8 to 3.8%. As the market climbs, however, these rates will climb until they reach a cap of 8.25%. By TICAS calculation, this may cost families $715 million more over the next 10 years. What does 3.8% interest translate to for students? If we go back to that average figure of $26,600, compounding for interest year over year using the 10-year-payback plan that is the standard, the total cost of your $26,600 loan is about $38,600. Break that down by monthly payments and you are looking at about $320 per month going toward student loan payments. “Debt costs you time in savings, pushes back when and whether you can buy a home, start a family, open a small business or access capital,” says Asher. Not to mention the opportunity cost of the education itself at almost $40,000.
Dealing with the Problem
What can we do? With more and more emphasis being placed on college education for all, raising costs of an already expensive degree, and underemployment of
college graduates running rampant, student loan debt is a problem that will cripple economic possibilities and success to come. In its recent report, Aligning the Means and the Ends: How to Improve Federal Student Aid and Increase College Access and Success, TICAS is calling for simplification and better access to information regarding student loan debt, including information on consolidating debt, and increasing students’ information to both school’s default and graduation rates.
While many have been calling for debt forgiveness to help settle this score, others have a problem with burdening the taxpayer with the responsibility to pay back loans that they are neither responsible for, nor benefit directly from.
While a more educated populous has positive externalities, debt forgiveness sets a bad precedent for the financial world. Ohio University developmental economist Julia Paxton says:
“One of the problems of debt forgiveness is
that it sets a precedent that similar loans in
the future will also be forgiven. Although the
loans are allocated toward education, money
is fungible and will have the net impact of
increasing the spending ability of students in
other areas of their lives. As the expectation
of repayment obligation falls, borrowers
may enter into a situation where they take
on higher levels of debt and take more
risks. This will lead to a weakened ability to
repay, creating a vicious cycle that hurts the
financial sector and the credit ratings of the
borrowers.”
I have seen firsthand the effects of this phenomenon that economists call moral hazard. One friend explained to me in my sophomore year that because his student loan money finally came through he was able to put the finishing touches on his beer pong table.
Student Loan Center
17901 Von Karman #600 Irvine, California 92614
Call Toll Free: 888-203-2250
Fax: 888-281-4767 www.StudentLoanAC.com
