Digging Out of Student Debt

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Digging Out of Student Debt
by Jane Bennett Clark, Senior Associate Editor




Angela Moore





When Angela Moore looks into her future, she sees checks for $500, $147, $280 and $250 piling up like leaves in a forest. Those are the amounts she could be paying every single month on her four student loans, which total $92,000, for the next several decades. If she postpones payments, the amounts she owes will go up. If she skips them, she could ruin her credit and end up in court.

Moore, 26, graduated with a bachelor's degree from the University of Hartford in 2009 with $25,000 in federal student loans and $67,000 in private loans. She devotes about half of her paycheck to those bills and resorts to credit cards to cover other expenses. Says Moore, the first in her family to graduate from college, "It's heartbreaking to have a college degree and not be able to pay for normal things because I have to pay student loans."

Moore works at an orthopedic surgeon's office, the same job she had in college. She would like to move on someday but can't afford to make less than her current wage of about $18 an hour. Nor does she see an obvious way out of her predicament. "If you're in that much debt and have a house or car, you at least have something you can give back. I have a piece of paper. I have nothing to give back."

Meet the young and burdened. Of borrowers who graduated from four-year colleges in 2008, 10% walked away with $40,000 or more in student debt, almost three times the number of students who borrowed at that level in 2000, according to the Project on Student Debt, an advocacy group. The default rate for students who entered repayment between fiscal year 2006 and fiscal year 2007 was 6.7%, the highest since 1998.

You'd think bankruptcy would be a solution to massive student debt, but for most people, it is not an option. You must demonstrate to a judge that repayment would cause "undue hardship," a term interpreted by some courts to mean the "certainty of hopelessness," according to Deanne Loonin, of the National Consumer Law Center. This strict standard applies to both federal and private student loans. Proposed legislation in Congress would change that standard for private student loans, making them eligible for discharge under the more lenient rules that apply to credit-card and other consumer debt.

Meanwhile, federal loans offer programs that let you reduce payments or even qualify for loan forgiveness. As for private loans, some lenders are offering deals to borrowers rather than see loans go south.

Cut a Deal With a Lender

A few years ago, lenders were rushing to offer private loans to students, including those who were less than creditworthy. Now, borrowers who couldn't afford the loans in the first place are defaulting in droves, says Joshua Cohen, a Hartford-based lawyer who specializes in debt. "The industry is either going to take a bath or start coming after people."

Some lenders hope to avoid both scenarios by offering interest-only repayments or other arrangements that lower payments for a time. "It does us no good to have a customer with a loan he or she is unable to repay," says Patricia Christel, of Sallie Mae, the giant student-loan company. Check your promissory note to see whether it includes such provisions. "It's very case-by-case," says Loonin. If it does not, try to negotiate a plan with your lender.

If you don't reach an agreement, ask the lender for forbearance, in which you make no payments at all for three-month increments, usually for no more than a year (interest continues to accrue). Lenders are less willing than they once were to sign off on these deals, but they may do so if they believe the break will get you back on track. "The important message is, contact your lender sooner rather than later," says Tim Ranzetta, of Student Lending Analytics.

With federal loans, you can be past due for months before going into default. With private loans, you generally fall into that category as soon as you miss one payment. A collector will start calling, and eventually a third-party collection agency will take over the loan. (The Fair Debt Collection Practices Act protects you from abusive collection practices.

Unlike the feds, who have the authority to tap your resources, private creditors must go to court to collect debts. "Until then, there's nothing they can do," says Cohen. Defaults are subject to your state's statute of limitations, typically six years. If you do get sued and lose, the creditor can garnish your wages, put a lien on your house and wipe out your bank account.

Pick a Plan From Uncle Sam

Federal loans, which include Perkins loans, Stafford loans and Grad Plus loans, provide more options. (The Perkins loan repayment provisions differ somewhat from the other two; call your school for details.) For Staffords and Grad Plus loans, the standard plan gets you out from under after 120 equal monthly payments over ten years. If you can't afford those payments but expect to have a higher income in a few years, you can choose the graduated plan, through which you make lower payments in the first few years and higher payments later over the ten-year span. Because you pay less at the beginning, you pay more interest overall.

If you owe at least $30,000 in federal loans, consider the extended repayment plan, which lets you stretch monthly payments as far out as 25 years, for lower monthly amounts but at a higher cost. Or you can consolidate your federal loans through the federal Direct Loan program and extend your payments to 12 to 30 years, depending on the amount you owe. (For details, see Direct Consolidation Loans - Welcome!!!.)

Borrowers whose federal debt outstrips their annual income should look into the income-based repayment plan, which is "like gold" for those who qualify, says Edie Irons, of the Project on Student Debt. This program, which improves on two other income-based programs, can reduce your payments to as low as zero.

You probably qualify if your total debt exceeds your annual income. After 25 years, any remaining debt is forgiven; you owe tax on the forgiven amount. If you enter the income-based repayment plan and then get a big bump in salary, your payments from that point on are calculated according to the standard plan.

Cops, public defenders, public-school teachers and others working full-time in the public sector qualify for cancellation of any remaining debt after 120 payments, made on or after October 1, 2007. To get this deal, your loans must be with the federal Direct Loan program, as opposed to the now-defunct program (known as FFEL) offered by private lenders. You can consolidate FFEL loans into the Direct Loan program. The forgiven amount is tax-free.

You have the right to defer federal-loan repayments for up to three years if you are unemployed, experiencing economic hardship, attending school at least half-time or serving on active duty in the military. The feds pick up the interest during the deferment on subsidized loans but not on unsubsidized loans. Call your lender for details.

If deferment isn't an option, ask your lender for forbearance. With a federal loan, you can suspend payments for up to three 12-month periods. Depending on the amount you earn and owe, you may be legally entitled to this deal. If not, ask anyway: It's in the lender's best interest to give you time to get on your feet. Interest accrues during forbearance.


digging-out-of-student-debt: Personal Finance News from Yahoo! Finance

 

haha I thought it was Captain Obvious?

 

And maybe I'm a fricking educational snob but WHY WHY WHY would you go $92k in debt for a BACHELOR degree? Unless it was UMich's Accounting program, or maybe Pre-law at Yale (those are just examples guys, I know there are stand-out programs at other schools, too)... otherwise, I mean, come ON!

 

I know you can't judge a book by its cover but... just looking at her, I would wager this girl liked to party and was living the high life off those student loans for four years without a thought to repaying them.

I know, I know....

 

Unless you are in a program that is considered elite at the undergraduate level there is no excuse to go into that much debt for a degree and to do it to attend the University of Hartford? You've got to be kidding.
I have about $40k in student loan debt ($37.5k of which is from grad school), but I also have a job where paying over $1000 a month on the loan isn't a problem (I pay a little over double what the min. payment is to get it paid off early). People really need to consider what their options are going to be after finishing a degree before committing to loans like this. I looked into what average salaries where of past classes, what companies people ended up working for, etc. before committing to loans to attend Vandy.
Also, not to be a stickler, but there is no "pre-law" program at Yale. Typically, people that want to attend law-school major in History or Economics (or some other liberal arts major) as an undergrad.

 

I had to take out some student loans when I was in undergrad school. It was the only way. In the end I rolled them into the refi of my home mortgage. Now they're gone. So is the house and I made a tiny profit.

 

Yet only the non-profits are being scrutinized that they are over charging for a degree that will provide little ROI when compared to the cost….hmmm.

 

My undergrad cost me just under 21k not including books and that's with doing 30 more credits than needed to graduate and all while earning 4 AAS degrees along the way. I'd say with books and supplies lets round up to 25k. I never lived on campus and had worked all the way through. Mines all paid for, thankfully mostly to my folks for helping me out with tuition and expenses. I've been contemplating grad school for a while now, but I'm terrified to take on any student loan debt without any gaurantee of ROI. With today's economic climate and so many people even with Masters degrees out of work or underemployed, I think I'll hold off.

 

You ARE being a stickler, for no reason. I purposefully put in my post the caveat of it JUST BEING AN EXAMPLE.... because I was specifically thinking of some posters on here who nitpick every single thing, just like this. It didn't even need to be pointed out.

 

Yeah, I wouldn't judge her by looking at her, but doing the Math something isn't adding up. However, I think it can be ruled that she used the student loan system like an unlimited ATM or perhaps had some seriously unreal aspirations of what her degree was going to do to pay that off, so cautious spending went to the wind. Funny how they don't mention what she majored in.

Reminds me of my call center days seeing all those ITT Tech graduates $40k or more in debt for an Associate degree and no transferable credits unless they wanted to $80k+ in debt for an ITT Tech bachelors degree. Talk about some bitter individuals when the subject of education came up...

 

92K for a Bachelors?????? I say if your that stupid (im sorry guys) then you deserve to deal with the repercussions of not knowing what it is your getting into. I generally feel for people but I am sick of hearing about students who are complaining that they have ungodly amounts of student loan debt and are not able to get a job yada yada..... Sorry but you took out the loans who did you think was going to pay them back? Did you mistake it for free money? and if you really didnt understand what you were getting into maybe you should have 1. asked someone to explain it or 2. not started college to begin with...

geezzzz im being harsh today.. hmmmm must be the sickies going to my head

 

Yep I know someone who has about 58k in student loan debt and has about 8 classes until he finishes his bachelors degree in Information management or something like that. I should add he is not sure how he is going to finish his degree because he has already taken out the max your allowed in student loans for undergrad.... So he has 58k and might not have anything more than an associates....

 

Looks like someone needs to find himself a part-time job at night or on the weekends!

And $58k is just NOT EXCUSABLE to me. It's just not. So you work and it takes you an extra 2 years to finish but you don't need loans, or better yet take a small loan like $6k (which is what I ended up with)? Isn't that better than owing $58K?

 

Ok, before we are too harsh on the girl in the article, I did a little research and the Univ of Hartford is $28k a year at the undergrad level (for the 2010 academic year). She legitimately could have used the full $92k on tuition so maybe she wasn't out living the high life. What is unforgivable is her thinking that a University of Hartford degree is worth anywhere remotely close to that kind of money.

 

Is this not what the "capitalist hawks" are shouting about today? We all hear this everyday, when many are shouting that either the government or some individuals in them are "anti profit," or anti capitalism. Is the argument not that people should be allowed to make any type of profit off others? Is that not what wall street does everyday? and many of us here probably own stocks in those companies that are ripping folks up everyday.

This argument should quickly regenerate into: what tuition (profit) is ethical, and what tuition rates are plain rip-offs. We read time and time again in this forum that for-profit schools, specifically, that for-profit DL doctorates are worthless, and the move by many B & M professors discouraging some major employers from hiring graduates of DL programs. But the very schools that these professors work at do the same thing (hiding behind the notion that they are non-profit) that these "evil for-profits" do, which is charge very high tuition for a F2F degrees that are equally worthless.

Until we all recognize that capitalism does not mean squeezing a lot of money from people; be it in tutions, mortgage payments, etc., the system will continue to crash and everyone of us will suffer the consequences (of companies, banks or schools stealing money from people through over-inflated mortgage payments, excessive tuition rates, and trading of over-inflated stocks with half-values in the stock markets).

Alot of students attend traditional B & M schools without knowing the total cost of the program. Sometimes, the original cost of a program can easily be changed due to the practice of constant tuition hikes every year, resulting in an over priced degree upon program completion. Does anyone here get frustrated when they spend hours on an institutions website looking for their tuition rates? Why do they hide that information? Is it not because they know that high tuition rates repel prospective students from attending their institution?

It is unfortunate that all higher education institutions with high tuition are seeming more and more as rip-offs because the value of their degrees are often over-inflated. The good news is that a crash in the system will affect all, including those that hide under "non-profit" statutes to rip-off students with very high tuition rates.

 

This, and what would be the problem with going to a CC for 2 yrs and saving $50k-ish in tuition ($56k minus what a typical CC costs, although I know CT schools are expensive)? You still graduate from the SAME SCHOOL but owe half the $. So if the name on the diploma is so important to her, she would have the same result with half the debt.

I know, I know, moot point because she already graduated, but still.

 

These institutions are only charging what the market will bear. The tuition rates charged by most state schools isn't enough to cover all of the costs associated with education that student, the school's endowment and the state cover the rest. Private schools are similar, the tuition they charge isn't enough to cover the expense of educating a single student, so money from the endowment funds the rest.

You seem rather anti-capitalism. If consumers wouldn't spend the money the rates would come down, this is on everything from stocks to consumer goods to education. What ever happened to personal responsibility? If a student wants to major in Gender Studies I'm all for that, but it is on them to understand what the value of that particular degree is. In my experience, departments inside colleges/universities have always been honest with students about average salaries, types of jobs, etc. they can expect with a particular degree.

 

I can't speak for this particular girl, and now in my early 30's I can appreciate the value of a CC, but if someone had recommended I attend a CC at 18 I would have laughed at them. Maybe I was more interested in the social aspects of college, as I think most 18 year olds are, so I can understand why she would want to have the "traditional" college experience. Now at 18 I was still bright enough to know that paying that kind of money for a University of Hartford degree is ridiculous and would have looked elsewhere. There are only a handful (maybe two handfuls) of schools I would pay that kind of money to attend as an undergraduate.

 

How dare you suggest someone take some personal responsibility It is always someone elses fault...