Poor job prospects have left well over a million college graduates struggling to clear a mountain of student loan debt. According to the National Center for Education Statistics at the US Department of Education, the average amount owed by graduating seniors was $23,186 in 2007/2008. This figure specifically excludes PLUS loans that are available for parents to help their children cover costs.
Student Loan Debt
Although there are a number of debt relief programs available for dealing with unsecured credit cards and loans, these same methods cannot normally be used to pay off student loans. Chapter 7 bankruptcy is a possibility, but the borrower would need to prove that their income potential has been permanently affected. For example, an individual was unable to work due to an untreatable illness or disease.
Pay Off Student Loan Debt by Living with Parents
If a parent is prepared to take out a PLUS loan to help fund college, they will be equally happy to let their son or daughter live at home rent free to clear college debt. Living at home allows a graduate to clear the money they owe at an accelerated rate. A report in ABC News on the 18th October 2009 documented how a graduate is able to clear debt over a two to three year period by living rent-free at the family home. Although living at home can be an inconvenience, it is considerably better than struggling financially for the next 20 years.
Student Loan Debt Forgiveness Programs
Debt forgiveness programs are available for those who have a federal student loan and plan to work in certain public sector jobs, such as teaching, nursing and the armed forces. This is to encourage graduates to enter essential positions that aren't necessarily the most lucrative from a financial perspective. Each year of service will reduce student loan debt by a fixed percentage until it is gone. It is important to note that the poor economy has led to many of these programs being dropped.
Student Loan Debt Consolidation
Although interest rates are lower on Stafford and Perkins loans, many graduates turn to banks to consolidate debt and simplify finances. A criticism of federal student loans is that a fresh account is created each year. According to Mark Kantrowitz, the publisher of FinAid, consolidating student debt will normally attract a higher rate of interest than the federal alternative. It may also restrict other options, including student loan debt forgiveness programs for certain public sector employees.
Student loan debt can be a huge problem, particularly for those who are unable to find suitable employment. When experiencing financial difficulties, it is important to liaise with the bank or school that has lent the money as there may be alternative repayment options or whether forbearance is an option. College debt cannot be cleared with the sort of debt relief programs that are available for other unsecured debts.
Sources
Randall David. (October 18, 2009). "How to repay student loan debt early." ABC News.
"Student loans." FinAid.
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