Student loans may leave students, parents struggling to pay

via Student loans may leave students, parents struggling to pay, clarionledger.com, 2/18/2015.

Paying for college is tough. The high cost of tuition, coupled with rising costs of everything from on-campus parking to residency rates, can put a serious dent in parents’ financial portfolios and can hobble a recent graduate with crushing debt. You will probably find it much easier to handle if you were wise enough to start aggressively saving for college when your child was still in the cradle, if you are independently wealthy, if your kid is a genius or if you had a really generous family.

Unfortunately, however, most of us aren’t in that boat. The dream of college for many Americans is financed through a combination of scholarships, grants, loans and grocery money. Students from middle-class families may be carrying a hard-earned sheepskin after slogging through their coursework, but often find that they are carrying something else along with their diploma: a bill to pay back their student loans.

Even students who find themselves with a well-paying job may find it difficult to pay back the student loan debt which hits like an oncoming train after graduation. And many aren’t able to pay it at all. A couple of weeks ago,Forbes wrote about the increasing rate of student loan defaults. The article noted that the U.S. Department of Education’s budget documents project that more than a quarter of undergraduate Stafford Loan recipients will default at some point during the loan. This comes after overall student loan default rates actually went down last year, but like a storm gathering on the horizon, the numbers spell trouble.

So I consulted some experts to get some advice. “Despite what you may have heard, student loans are not all bad; after all, student loans are an investment in your own future!” notes Jennifer Rogers, Director of Student Financial Aid at the Mississippi Institutions of Higher Learning (IHL). “But knowing how much or how little to borrow can be tricky and the right amount of loans will vary by person.”

Rogers recommended The Project on Student Debt website, an initiative of the Institute for College Access and Success. This organization gathers information on student loans. According to their figures, nearly 70 percent of college seniors nationwide who graduated in 2013 had student loan debt, with an average of $28,400 per borrower. Mississippi’s rate was lower, with about 57 percent of Mississippi students graduating from 4-year institutions carrying some debt after graduation.

Nationally, Mississippi ranked 34th in the nation of 48 states ranked for the highest rate of debt (with 1 being the highest rate of debt and 48 being lowest). That’s not bad, except when you consider the actual average Mississippi graduate’s debt of $27,571 per borrower, making us 19th in the list. (To get a ranking of debt among Mississippi 4-year institutions, http://www.Collegeinsight.org has a sortable list of Mississippi institutions, but debt information is only included for nine institutions of 23 listed.)

According to the U.S. Department of Education, on average about 16.3 percent of Mississippi students default on their loans, with higher rates (23.3 percent) among those graduating from two-year public institutions. The rates for four-year public institutions is 12.3 percent, with 11.4 percent of private-institution graduates and 13.3 percent for proprietary schools.

Rogers gave some tips to consider when considering loan options:

  • All loans are not created equal. Look at interest rates and repayment options.
  • Students get into trouble with loans when they borrow more than they need. When a loan is offered, you don’t have to accept the entire amount. If you only need an extra $3,000 to cover the dorm, don’t take out a $5,000 loan just because that is what is offered. Borrow enough that you can focus on doing well in your classes and finishing on time rather than on working three jobs to cover your costs.
  • Stay the course and finish your degree. If you take out a loan for a degree you never finish, remember that you still have to repay the loan. That could help motivate you to go ahead and get your money’s worth.

And if you do find yourself unable to make your loan payments, the best advice is to not ignore the problem; it won’t go away. “Students who are in trouble absolutely have to talk with their lender first,” says Michael Gaer, creator of Collegefinancing.com and president of New Jersey-based Gaer Financial Group (quoted from Bankrate.com). “They can’t just walk away from it because it’s going to affect their credit score. It’s going to affect their entire lives.”

Rogers has similar advice. “Students should contact their loan servicer at the first sign of trouble,” she says. “Federal loan servicers have a number of tools available to help students repay their loans successfully. Students should contact their loan servicer immediately and consolidate their loans when possible. In many cases, students are also eligible for income-based repayment plans.”

Here are a few more tips, from http://www.Bankrate.com:

  • Being honest opens up a variety of options. As Rogers noted earlier, federally-backed loans come with some options that may not be available to borrowers with non-student-loan debt. For example, deferment orforbearance may be available for you, allowing you to delay payments or temporarily reduce them. In addition, lenders of federal student loans are required to allow you to change your payment plans once a year.
  • Ask about payment plans. Since most student loans carry a standard 10-year repayment plan, you have the option to change that. In some cases, you may be allowed to stretch payments up to 25 years (but that’s a really long time to be paying college debts.) Currently, the federal government offers five types of repayment plans, the most recent of which is the income-based repayment plan, which caps payments at 15 percent of your monthly “discretionary” income.

The bottom line is that you have a lot of options, and delinquency and default can cause serious damage to your credit. If you find you’re in over your head, the Consumer Financial Protection Bureau and the U.S. Department of Education have teamed up on a tool they call the Student Loan Debt Collection Assistant. The tool guides you through a simple interview, to show you your options. Visit http://1.usa.gov/1Ky96IN to get started.

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