Managing Student Loans: Introduction
In this series of articles, we will talk about managing your student loans, including what happens if you can’t pay them back, what bankruptcy can and cannot do, and how you can minimize your payout and maximize your benefit from hard earned dollars you expend to pay for an education you worked so hard to get.
Are you part of the $1 Trillion?
The student loan industry is huge. As of 2011, outstanding student loans topped $1,000,000,000,000 in the United States alone. People had more debt from student loans than they did from credit cards. That may seem surprising at first, until you look at the cost of the commodity you’re buying. For the year 2013-14, the cost of tuition and fees averaged just under $9,000 for in-state rates at public institutions, and just over $30,000 at private colleges. That doesn’t even touch books, room and board, travel to and from campus, or pizza and beer, for which you can add another $15,000.
Multiply that by four years, and the cost of “going away to college” reaches a staggering $96,000 to $180,000. My first house didn’t cost $96,000. And much of that cost is financed by the student loan industry.
Two thirds of graduates of four-year institutions left school with educational debt. The average debt load of those graduates is more than $25,000. Add to that the outstanding balances owed by two-year and certificate graduates, students who have not completed their programs, and loans taken out by the parents of all these students and you can begin to see the magnitude of the issues.
High Default Rates for Student Loans
Now let’s talk about how these loans are being repaid. Unfortunately not all of the loans are being paid as agreed. In fact, a couple of statistics are telling. Only 36% of students pay on time during the first three years after graduation. The default rate – a default occurs when payment is not made for 270 days - during those three years is a hefty 14%. Compare this with the charge-off rate for credit cards in the last quarter of 2014 as reported by the Federal Reserve.
In many ways the consequences for defaulting on student loans are much more severe than those for credit cards. When a credit card is charged off, bill collectors can attempt to collect by phoning and writing the consumer, then sue the account holder and use the resulting judgment, in some cases, to garnish wages or levy against the consumer’s property to satisfy the outstanding balance. But, the consumer has tools, also. He can defend the lawsuit and force the lender to prove the balance, something that bill collectors often have trouble doing.
He can also discharge most or all of the credit card debt in a bankruptcy proceeding.
Those remedies are not necessarily available to the student loan borrower. Under federal law, student loan companies can garnish wages without a judgment, and most everybody will tell you that student loans cannot be discharged in bankruptcy, although this is not entirely true.
Relief for Student Loan Borrowers
Just because federal law gives the student loan lender special protections and privileges, doesn’t mean the student loan consumer has no rights or remedies. In this series we talk about the options available to borrowers for eliminating or managing student loan balances.
There are generally five types of relief a student loan borrower can enjoy.
- Forbearance or deferment
- Modification of payment, including consolidation of loans
- Compromise or settlement
- Challenge collection
To get an overview of the programs available to you as you work toward repaying your loans, check out our article MANAGING STUDENT LOANS: YOUR OPTIONS IN A NUTSHELL.
Not all relief programs are available to all borrowers. It depends in large part on what type of loan you have. For a primer on the different types of loans available to borrowers and how you can determine what type you may have, see our article MANAGING STUDENT LOANS: WHAT KIND OF LOANS DO YOU HAVE?
You can get more information on the types of loans available and the programs you can use to obtain relief from federal loans at the Department of Education’s website.
To learn more about the steps you can take to lessen the burden of high student loan payments, check out the articles in our series Managing Student Loans:
When You Can't Make Your Payments
Student Loans in Bankruptcy