By: Robyn Gee
Story after story about college students graduating with mountains of debt permeate the news every day. Headlines like, “A Generation Hobbled by the Soaring Cost of College,” suggest that today’s 18 - 34 year olds can’t pursue their dreams without shouldering years of debt repayment. President Obama has urged Congress to prevent the interest rate on Federal Subsidized Stafford loans from doubling this July.
Amidst all this doom and gloom, what's a young borrower to do?
Lauren Asher has some answers. She's the President of the Institute for College Access and Success, home to the Project on Student Debt.
Best-Kept Secrets
Income-Based Repayment
"Income-Based Repayment (IBR) is available to all federal student loan borrowers, whether you’re finishing school now, or you’ve been in repayment for years and are just hitting hard times," said Asher. For all fed student loans, IBR caps your payments based on what you earn and your family size. Payments can be as low as zero if your income is really low, and if your income is high, the payments will never exceed 15 percent of your income, according to Asher.
After 25 years of payments that are based on an affordable share of your income, ethe rest of your debt is forgiven. The program is designed to help people who can’t afford a ten-year payment plan, and prevent them from cutting into their basic needs. The website IBRinfo.org can help you determine what you qualify for.
Tip: If you can’t afford a ten-year standard payment, you may be eligible for an extended repayment plan. If you owe at least as much as you earn in a year, you probably qualify.
Public Service Loan Forgiveness
For students using Income-Based Repayment (IBR) for federal loans, this is another option if you work full time for a public or non-profit employer. "You could get loan forgiveness in ten years," said Asher, "instead of the 25 years that is the IBR standard. If your income is low relative to your debt, which happens for lots in public service jobs, you could qualify for loan forgiveness in ten years,” said Asher.
Tip: Your years with a public or non-profit employer don't have to be consecutive.
Pointers for borrowers
Avoid part-time enrollment
Cutting corners to avoid debt, could actually hinder your long-term success. “If you go to college part-time instead of full-time, if you go to a two-year school when you’re qualified for a four-year school, if you work more than 20 hrs a week while you’re in school-- those are all decisions that you might make to limit your debt, but also, research has shown, reduce your odds of completing a degree. So if some modest student loan borrowing will help you go to school fulltime, have enough time to study and finish in four years, it might be a good investment,” said Asher.
Avoid private loans
Start with federal loans and consider private loans as a last resort. "If a school is pushing you to consider private loans, keep looking. There are lots of schools where you can actually come away with little or no debt," she said.
Think of federal loans as a form of financial aid. "They come with all of these repayment options and borrower protections that private loans and other financing don’t have. They also come with fixed rates, which is important so that you can predict your costs," said Asher.
Face your debts before the bills start
If you’re just finishing school, don’t not bury your head in the sand or wait until the last minute. Figure out how much you owe, to whom you owe it, and what kinds of loans you have.
Make sure the lender knows how to find you, because if they send an email to an old address, or a piece of mail to a place you no longer live, you are still accountable for that payment and could see your late fees rack up pretty fast.
Situations To Avoid
Co-signers
Your co-signers are liable for the amount of the loan they sign. “We have heard stories from people who were trying to spare their parents from borrowing to help them pay for school, and took out a private loan with their parent as a co-signer. Then the parent realized that it was affecting their ability to qualify for a mortgage. Or if something happened to their child, sometimes very debilitating illnesses, they still have to make those payments,” explained Asher.
Delinquency
Federal student loans go into delinquency after two months of non-payment, which affects your credit score. After nine months, you go into default which has very severe consequences for the borrower. Wages can be garnished, tax refunds claimed, and even your social security benefits can be taken away.
For private student loans, lenders reserve the right to declare you in default for any reason. If you default on a private student loan, your credit rating is ruined, affecting your ability to get a job. In addition, you'll be chased by collection agencies.
Differences between private and federal student loans
According to Asher, private student loans and federal student loans only have one thing in common -- the words “student” and “loan.” Federal loans are the safest way to borrow for college, and private loans are the riskiest, she said.
“They’re entirely different financial products. Private loans come with none of the repayment plans, or borrower protections, or forgiveness programs that federal loans are guaranteed to provide. … You’re really at the mercy of your borrower when you’re struggling with private loans. You can read the fine print on your promissory note, but odds are there is very little you can count on when it comes to assistance or relief,” she said.
Private student loans are just another form of unsecured consumer debt, like credit cards, said Asher. They have variable interest rates and no cap. But unlike credit cards, they are not discharged in bankruptcy. “Even gambling debts are discharged in bankruptcy -- but private student loans are treated like unpaid criminal fines,” said Asher. For the first time ever, the Consumer Financial Protection Bureau has set up a complaint hotline for people with private loans.
Federal loans, in contrast, come with a lot of deferment and forbearance options as well as programs like Income-Based Repayment that can help you keep your payments manageable. “Federal loans come with unemployment deferment, economic hardship deferment, in-school deferment, active military duty deferment, there are also forbearances where interest accrues on more of your loans. These are not long term debt management solutions, they are helpful short term solutions. They are available for federal student loans without fees, and for clearly defined circumstances,” she said.
Originally published on Youthradio.org, the premier source for youth generated news throughout the globe.
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