Student Loan Problems arise from lack of knowledge, not resources

The most recent 3-year national cohort default rate released by the Department of Education for Fiscal Year 2011 is 13.7%.  According to the Department of Education, a 3-year cohort default rate is the percentage of a school’s borrowers who enter repayment on certain Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans during a particular federal fiscal year, October 1 to September 30, and default or meet other specified conditions prior to the end of the second following fiscal year.

 

This rate should be 0%.  This is because for any federally backed loans, borrowers are given 3 years of forbearance time they can use.  While this is not the most effective way of handing your loan situation, it is more effective than defaulting.

 

This leads us to a major point.  Most student loan problems arise from lack of knowledge rather than a lack of resources.  While you may eventually not be able to pay due to your situation, this comes way down the road.

 

For one there are plans that exist based entirely on your income.  These payments start at $0.00 but are designed to be no more than 10 to 15% of your Adjusted Gross Income after it is adjusted further by subtracting 150% of the poverty line.  If you know this ahead of time, you can try and fit this number into your budget so you know how much house, car, or other expenses you can fit in in life.  Please be advised though if you are Married Filing Jointly this is based on you and your spouse’s income, but can be adjusted to reflect your spouse’s eligible loans as well.

 

However if this doesn’t work, there are more options still that exist.  For example, you can defer your loans for 6 months if you are working less than 30 hours and registered with an employment agency or receiving unemployment benefits.  You can defer your loans if you are receiving state or federal assistance or within 150% of the poverty line based on your income and family size for just your income.  You can have a forbearance applied to your account if your loan payment is more than 20% of your income.  In other words, you have options.

 

So what should you do to find out about these options?  I’d suggest talking to a professional.  You can start with your loan servicer if you want or if you prefer to have the same person help you throughout the entire process and receive what can often times be a more complete analysis (loan companies can’t always do this unfortunately due to time constraints), you may want to consider a student loan coach.  Either way, the last thing you do is throw your hands in the air, put your head in the sand, and ignore the issue.

I agree fully that we have a student loan problem in this country.  However a lot of what is driving it in my opinion is a level of unawareness from the borrower.  Being unaware about what that price tag going into school means (private vs public education) down the road in terms of payment amounts; unaware and not considering what other bills you may have down the road; but most importantly there is an unawareness on what programs are available and what you can do to improve your own student loan situation.

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