Student debt is sobering reality after graduation

Student debt is sobering reality after graduation

The news is promising for the collegiate class of 2015 as the graduation season comes to an end. The National Association of Colleges & Employers says the hiring of new grads is expected to spike this year by nearly 10 percent.

Fact is, a majority of the graduates is going to need the jobs and need them quickly to begin paying off the cost of their higher education.

The statistics are troubling.

Student debt now exceeds $1 trillion. Seventy percent of bachelor’s degree recipients in the class of 2014 graduated with student loan debt averaging nearly $33,000.

As many as one in three student loan borrowers are delinquent on payment of 90 days or more.

Default rates exceed 13 percent. The U.S. Department of Education reports that 650,000 student borrowers who began their official repayment period in the 2011 fiscal year defaulted on their loan within the next three years.

Almost a third of students with loans drop out of school. They leave school with debt — but without a degree to show for it. And this group of non-completers also defaults three times as often as those who graduate.

The time is ripe for an overhaul of the system of financing college.

Sen. Lamar Alexander, R-Tenn., chairman of the upper chamber’s Health, Education, Labor, and Pensions Committee, recently outlined his reform agenda, which includes a measure that could force colleges to assume some of the financial risk for their students’ loans.

Compelling colleges to have some “skin in the game” may help reduce default rates. Such an approach may also encourage post-secondary institutions to ensure that students understand the implications of the debt they’re taking on.

Most student borrowers do not — even though they’re required to undergo federally sanctioned student-loan exit counseling.

That’s a problem the feds have the opportunity to fix. They can do so by improving the quality of their student-loan counseling efforts.

In the meantime, the students having already compiled the debt must deal with it. Help is available.

“Repaying debt can be an overwhelming burden for new grads,” said Mike Sullivan, director of education for Take Charge America, a national nonprofit credit counseling and student loan counseling agency. “Many students struggle with huge monthly payments that impact all of their daily living expenses, but there are numerous options for former students in a variety of life situations.”

Sullivan notes student loan forgiveness is a repayment option about which many consumers are unaware. Forgiveness results in the cancellation of some or all of a borrower’s federal student loan balance. The most common types include:

• Pay as you earn: This program was created for students facing a partial financial hardship. Monthly payments are based on income, family size and state of residency, and are capped at 10 percent of discretionary income. For borrowers with an on-time payment record, balances are forgiven after 20 years.

• Income-based and income-contingent repayment: These options are available for students with a high debt-to-income ratio. Both plans calculate monthly payments based on income and family size, and forgive remaining loan balances after 25 years.

• Public service: People who work full-time public service jobs – for the government, military, public schools or not-for-profit organizations – may be eligible for the Public Service Loan Forgiveness Program, which requires them to make 120 qualifying payments on their loans before the remaining balance is forgiven. There is also a separate program specifically for teachers, in which borrowers can qualify for up to $17,500 in forgiveness…

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