The number of graduates in desperate need of student debt help has risen considerably in recent years. Arne Duncan, the U.S. Secretary of Education, said that the figure currently stands at 6.7%. Of the 3.3 million borrowers, a total of 225,300 are currently in student loan default. In 2006, this figure stood at just 5.2%. As career opportunities become increasingly scarce, the current rates appear to be here to stay.
Student Debt Help
Unlike other unsecured debt, it is not possible to write-off student loans with a debt solution. The only time this may be possible is if a graduate is experiencing extreme financial hardship as a result of a medical condition that indefinitely affects their earning potential. However, there are a number of different ways to avoid student loan default.
Student Loan Default
Individuals with a Stafford loan will be expected to make their first repayment six months after graduation. It is nine months for those with a means tested Perkins loan. Failing to comply with the terms of the promissory note (the signed legal document) is likely to result in legal action to recover the money owed. The consequences include bad credit, withholding tax refunds, further charges, legal action and deductions from paychecks.
Student Loan Forgiveness Programs
Entering a career, such as nursing or teaching, could mean that up to 100% of student loan debt is forgiven after serving the community for x number of years. Whilst difficult times have meant that there have been some cutbacks in recent years, there are still a number of programs designed to reduce federal college debt. These programs aren't available for those who took out a private bank loan.
Live at the Family Home
Those who don't qualify for a student loan forgiveness program should consider moving back in with their parents. Living at home rent-free means that there is extra disposable income available to reduce debt. Rather than repaying the money owed over the next 10 to 30 years, it is relatively easy for the average graduate to clear $25,000 over a two to three year period- perhaps less.
Consolidate Student Loan Debt
It is possible to reduce monthly repayments by consolidating a combination of federal and private loans. Given that the standard repayment term is just 10 years, increasing this to 30 years could reduce monthly contributions by as much as 50%. However, extending the term of any debt through student debt consolidation will increase the cumulative interest paid over the life of the loan.
Deferred Student Loans
Choosing to defer payment can give a college graduate some extra time to get back on their feet. For example, a better paid source of employment could mean that repayments are more affordable. However, the interest will continue to accrue and will increase the total amount that is owed. This isn't a long term solution, but it does buy the borrower time to sort things out.
Whilst college debt cannot be written-off, it remains possible to get student debt help. Don't ignore the debt as the laws are very different to other forms of unsecured debt. It is essential to seek assistance at websites, such as studentaid.ed.gov.
Sources
Glickman, Jane. (Sept 14, 2009). "Student loan default rates increase." U.S. Department of Education.
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