Confronting Student Loan Problems

This is a guest post by Suzan Bekiroglu:

Record numbers of young people are going to college yet are unable to find a job when they graduate today. Thus, many people have started to question if it still makes sense to take out loans to get a college degree. While it still holds true that a typical college graduate will outearn a typical high school graduate, the amount of debt that students have to take on to get that degree has increased exponentially over the past several years, causing many financial experts to warn that there is a looming student loan crisis ahead.

The average student graduating with a Bachelor’s degree today has over $24,000 in student loan debt. This includes both private and federal loans. This amount increases significantly for students with Masters and other professional degrees. Unlike most other loans, such as mortgage and credit card debt, it is practically impossible to discharge student loan debt during bankruptcy. In fact, in 2008 just 39 bankruptcy cases out of 39,000 cases filed had their student loans discharged.

High loan amounts combined with student loans unable to be discharged have made it extremely difficult for many former students to make loan payments. Unlike practically every other loan that is given to an individual, there is no vetting process for student loans. Students may take as much as they want, and are often under the impression that they will make enough, later on, to pay off the loans.

In actuality, students are graduating tens of thousands of dollars in debt, and in this poor job market have very few opportunities to make enough to pay the money back. Furthermore, student loans tend to last for years. While the standard loan term is ten years, many people defer and extend their payment terms for much longer. Many people report paying off their student loans about the time that they need to send their own children off to college.

In fact, the very people who regulate the student loan industry have stated that they have struggled with paying off their own student loans. President Obama mentioned recently that he and his wife did not pay off all of their student loans until eight years ago. There are several other notable political figures with the same predicament, including Florida Senator Marco Rubio with more than $100,000, California congresswoman Linda Sanchez, who owes more than $15,000 and could owe up to $50,000, and Washington state's representative Cathy McMorris who owes over $10,000.

This situation has led to high levels of student loan defaults, causing the necessity of experts to propose some changes to our current student loan system. A recent conference at the American Enterprise Institute discussed the issues currently facing student loans and proposed several solutions to the crisis. Panelists at the conference advocated placing an upper limit on the amount that students would be allowed to borrow. While it is believed that this may limit the opportunities for some students, the protection such a rule would offer far outweighs this risk, according to the panelists. There were also recommendations for ways to control college costs, including a recommendation that federal and state governments resume their support of higher learning.

If a borrower is unable to make payments, there are several payment options available to avoid reaching a default. You can delay making payments with forbearance and deferment. Forbearance temporarily reduces or postpones federal student loan payments, whereas deferment is a period of time where regular loan payments are suspended by the loan provider. There are also different methods of reducing payments. One can select an income-based repayment, which reduces loan payments based so as to not exceed 10% of a borrower's total income. It is also possible to reduce payments by using student loan consolidation. Student loan consolidation combines several loans into one lump sum payment which can be paid at a lower interest rate. Additionally, borrowers who have certain public sector jobs may be eligible for a portion of their student loans to be forgiven. It is most beneficial for a borrower to contact their loan provider to find out which option would be best.

The current state of student loans resembles the state of mortgages before their bust. Too many people have taken out loans that they cannot afford to pay back. More solutions are urgently needed for graduates to get some relief on their student loan debt.

Ms. Bekiroglu is a published author and a freelance writer. After receiving a Bachelor of Arts degree from the University of South Florida, she faced the mounting obstacle of paying over $24,000 back in student loan debt. Determined to eliminate the debt, she became knowledgeable about money management. She seeks to educate others with tips on managing student loans and other kinds of debt, as well as in general personal finance and money-saving tips.

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