Getting a Grip on American Student Loan Debt

There was a time not too long ago when you could get a good college education without worrying about it destroying you financially in the long run. But unfortunately, those days are over. At least for now. In merely ten years, 2003 to 2013, the average number of 25-year-olds that carry student loan debt jumped up to 45 percent from 25 percent. Within about that same time frame the number of college degree holders with over $50,000 in student loan debt increased from one percent to 10 percent.

Over 40 million people in America currently face paying off student loan debt and the number only continues to rise. How much student loan debt is there in America? A whopping $1.3 trillion worth. That makes student loan debt almost the leading cause of debt in America, with mortgage debt being the only one ahead of it.

And it’s not that college graduates don’t try to pay off their debt. A lot of it has to do with the intense rate of increase in tuition costs. But there are many other reasons, too. In some cases, it may be that they simply don’t understand the terms of their loan and repayment. Other times, it’s because of economical reasons. They simply aren’t earning enough to live off of and still pay their monthly payments.

Too Many Don’t Understand Repayment Options

While the government has initiated a number of options for those struggling to repay student loans, less than 15 percent of Americans are using them. Even if they do realize that options are out there, many times those options are just too complicated to understand or require a mountain of confusing paperwork.

Income Based Repayment

One of the best options is the Income Based Repayment plan, which could significantly lower monthly payment requirements. The only downside is that it can only be used on loans that were provided by the government. But it can be used for both newly made loans and old loans. With this plan, monthly payments can’t go beyond about 15 percent of income. When figuring how much will be owed, it’s discretionary income that counts. If those payments are made for 25 years, whatever’s left on the balance is forgiven.

Some people believe that making Income Based Repayment something that students are automatically enrolled in is the answer (think of auto-payroll deductions like Social Security). See this New America Foundation report for more debate on that.

So if all the loans were provided by the government then the IBR program should be able to help quite a bit. But what if there are loans from other private vendors mixed in? Then it gets trickier.

You can go to each private lender for help. They would rather help you find a way to make your payments than to have you end up defaulting and not getting their money back at all. It’s time intensive though, especially if there are multiple vendors to contact and work with. Plus, each one is almost sure to have different options and different terms to understand and juggle each month.

Or you can go through a consolidation specialist that will do all of the above for you. But you have to be careful, because there are many shady companies out there will only do more harm to the situation and your credit. National Debt Relief, highly rated by the BBB, has some good information on student loan debt options.

While President Obama has announced his idea to offer free community college to those who keep their grades up, that doesn’t much help the 40-plus million Americans already struggling with student loan debt. An article on the Huffington Post debates the need to simply obliterate all the debt and figure out how to pay for it later. They claim that the 2001 tax-cuts that catered to the already-wealthy could have paid for the elimination of all of America’s student loan debt. What do you think?

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