Back to School and Student Loans

Paying for college is more expensive than the actual dollar-figure.

The average annual costs of attending a four-year college for the 2014-2015 school year was $25,409, according to a study completed by the National Center for Education Statistics. For many families, that is a cost roughly equivalent to the price of a brand-new car, with a good warranty. 

For many of these same families, this makes college an unachievable aspiration without taking out student loans. 

While student loans can be a great deal for many families and students, they are not all created equal. For students, and their families, who are using these loan options to pay for their tuition and other expenses, it is important to find a trustworthy and reputable lender. They must also ensure they understand the repayment obligations of the loans they contract into. 

The sad part is, there are facts you may not know about the current student loan market, and the way student loans work. Whether it is simple oversight on the part of the loan services and providers, or intentional failure to mention, is up for debate. Nevertheless, here’s some good information to keep in mind when you are considering a student loan to cover your educational expenses.

It is a lot of debt to haul around. 

In June of 2010, student loan debt alone surpassed national levels of credit card debt; this is according to an article by Deanna Templeton written for Yahoo Finance. In her article, she states that “Since then, outstanding student loan debt has surpassed the $1 trillion mark – making it the single-largest form of household consumer debt outside of home loans.” 

Translated to normal terms: your student loan debt can cost more than your mortgage by the time it’s all said and done. 

That’s a virtual ton of debt. What happens if it becomes too much for you or your family?

Bankruptcy is NOT a viable option. 

Current laws prohibit federal and private student loans from being discharged in bankruptcy. The only way to legally get bankruptcy relief for their defaulted and outstanding student loans is for you, the borrower, to prove undue hardship. However good that may sound, the requirements that must be met to qualify for that caveat are extremely strict. In fact, meeting these requirements for undue hardship is nearly impossible for many people who have tried.

Therefore, just resign yourself to the fact that your student loans have to be repaid. 

No ifs, ands, or buts about it. 

Some teachers and licensed educational personnel can earn relief on their student loans. 

Elementary-school and high-school teachers can qualify for a break on their student loan debt if they teach five consecutive academic years in geographic areas that serve low-income families. There are other qualifications, but this program is a viable option for many educators. According to the United States Department of Education, “You may be eligible for forgiveness of up to a combined total of $17,500 on your direct subsidized and unsubsidized loans and your subsidized and unsubsidized federal Stafford loans.” 

Another option is that if a teacher has loans from the Federal Perkins Loan Program, he or she might be eligible to have their loan cancelled in return for teaching full-time, at a low-income school or in certain underserved subject areas. 

Required counseling may not really be effective. 

Every student who takes out any federal student loan is required to complete “counseling sessions” before borrowing any money. They must also complete a counseling session when they finish their degrees. Most colleges use online modules provided directly from the Department of Education. Unfortunately, these modules have been rather bulky and ineffective thus far, according to Ron Lieber in an article in the New York Times

“The modules are filled with phrases like this one: ‘Graduation before exceeding your maximum eligibility period protects direct subsidized loans received from interest subsidy loss.’…. The financial aid system is more complicated than it ought to be, and even adults have trouble making sense of it. How on earth can we expect a bunch of teenagers to sort it out?”

You may be able to change your payment plan.

Standard student loan repayment plans are usually based on a 10-year repayment term. 

However, some graduates may not be making much money, or may be unable to find work in their chosen field soon enough after graduation to begin making their payments on time. For those individuals, their payments may be more than they can afford for a long time after graduation. 

In cases like this, the education department’s advice is to apply as soon as possible for an “income-driven repayment plan”. 

“Your monthly payments will likely be lower than they would on the standard plan – in fact, they could be as low as $0 per month – but you’ll likely be paying more and for a longer period of time.”

You will be required to provide income documentation to your loan servicer each year; based on that information, your loan payment amount will be recalculated to reflect your current income. 

So, where do we go from here?

So far, Congress has not chosen to take action on the elevated costs of a college education, or the problems associated with student debt. That means the current situation is unlikely to change soon, if at all, and students must continue to try to find ways to pay the costs of their education. In many cases, they and their parents must pursue student loans. One way to do right by your wallet and your education is to work with a lender you can trust is one way to make sure your student debt experience is manageable for your life after graduation.