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Dealing With Student Loan Debt

By: Katelyn Six, Section Editor for Block Beat (katelyn.six@gmail.com)

One year after President Barack Obama introduced the Student Loan Forgiveness Act of 2012, students are still feeling the crippling effects of student loan debt. With the United States reaching $1.2 trillion in student loan debt, coupled with challenging economic times and a tough job market, students continue struggling to find ways to finance their education. Two-thirds of these students are graduating with an average of $26,600 in debt.

High monthly payments and growing interest rates can make repaying loans on an entry-level salary quite a challenge. An inability to make timely payments can result in delinquency or worse, defaulting. The Institute for Higher Education Policy reports that “for every student loan borrower who defaults, at least two more borrowers become delinquent without default.” Not only does this hurt the borrower’s credit score but may lead to unwarranted calls from debt collectors.

Who has the most trouble paying back student loans?

According to the American Student Assistance nonprofit organization, students that leave college before they earn their degree struggle most with paying back loan debt. Currently, a third of Americans ages 25 to 29 years old have earned a bachelor’s degree at minimum. In today’s competitive workforce, dropping out before attaining a degree often results in a reduced likelihood of obtaining employment. This can be especially difficult when students have taken out subsidized or un-subsidized federal student loans and private student loans to fund their education. Education Sector Research Assistant Mary Nguyen explains that “many of those who drop out are saddled with high loan payments even as they are more likely to be unemployed and earn less than their degree-holding peers.” Now more than ever, the increasing financial burden of paying for college is causing many students to seek not just part-time jobs, but even full-time work to minimize loan debt, which Nguyen says can have devastating results. Trying to juggle school and a full-time work schedule may lead to compromised studies and possibly dropping out altogether.

What is the main factor causing this smothering debt-epidemic?

While tuition prices differ vastly from college to college, overall, the price has tripled the rate of inflation in the past 25 years. Student borrowing began to soar in the early part of the decade as a result of the Pell Grant, a federal grant that does not have to be paid back. However, while the Pell Grant amount has remained the same throughout the years, tuition rates have not. Due to the economic downturn in recent years, tuition prices have risen considerably. In the past, private student loans issued by for-profit lenders were handled in a similar way as credit card debt was, allowing students to file for bankruptcy. However, in 2005, a provision was added to the bankruptcy legislation that made discharging these loans unattainable, leading to seemingly inescapable debt.

Many a critic can be found mercilessly blaming the federal government for the all of the nation’s debt problems. But, like any good argument, there are always two sides. In order to contend with student borrowers who face federal student loans that guzzle most their household income, the United States Congress introduced new repayment plans to ease the burden on the borrower. Now, the Standard Repayment Plan, in which monthly payments are fixed amounts that are made for up to ten years with interest rates that continue to accrue for the entire lifespan of the loan, the government has now implemented a “Pay As You Earn” repayment option, which helps make monthly student loan payments more reasonable . With this plan, eligible borrowers that have at least a partial financial hardship can make payments based on income and family size with payments made over a 20-year period, as opposed to the traditional 10-year repayment period.

While graduating from college with a degree in hand and an increased opportunity for employment may be the ultimate goals for student loan borrowers, the cumbersome burden of repaying that debt after graduation remains a daunting reality for a large number of college graduates in the United States.

To find out whether you qualify for the Pay As You Earn repayment plan, visit:

http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn/calculator

To learn more about President Obama’s Student Loan Forgiveness Act of 2012, visit:

http://www.gpo.gov/fdsys/pkg/BILLS-112hr4170ih/pdf/BILLS-112hr4170ih.pdf

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