As students’ college loan debt grows, How much student loan debt is too much?
Like many of her classmates, Noelle Hutson has built up student loan debt to get her college education.
The Prescott Valley resident is attending Northern Arizona University to get an advanced degree that will allow her to become a school psychologist.
She’s nearing the end of her time in school and is now facing repaying back about $60,000.
“I feel like loans kind of set people up for failure,” she said. “People I know are worried about it, but when we’re in school, we kind of just push it out and say, ‘We’ll worry about this once we’re working.’”
With more students attending college, and taking on debt to do it, the nation’s outstanding student loan debt grew by 2.1 percent, to $1.41 trillion, from $1.38 trillion at year-end 2017, according to the Federal Reserve Bank of New York.
That number is greater than the total U.S. auto and credit card debt, according to the Fed, and students who earn a bachelor’s degree are wrapping up college owing an average of $37,712.
Arizona’s students fare better — they have an average debt of $23,447, according to the Institute for College Access and Success, and half of students have student loan debt.
Rising interest rates on federal undergraduate student loans are partly to blame. They’ll go up 13.5 percent starting July 1, for the 2018-19 school year.
Loans for graduate students will also increase about 10 percent.
Loans can have some unexpected benefits, said Raymond Ceo, director of financial aid at Yavapai College. “I used my student loans as an incentive to complete my degree. I knew as long as I was enrolled in school at least half-time I wouldn’t have to start making payments on my loans, and I’d get a six-month grace period to find a job,” he said. “Federal student loans can be your best form of credit, as it is an amount owed to Uncle Sam. Paying your student loans off as the payments come due alone can help you get that car loan or house loan later on.
“One of the biggest default indicators are students who take out loans but don’t complete their education,” Ceo said. “Federal student loans should be more of a last resort, but they are available to help a student to pay for educational related expenses including housing and transportation. Students can manage their debt by budgeting and only borrowing what they need.”
In an effort to help ensure the loans are paid back, Rebekah Salcedo, director of the University of Arizona Office of Scholarships and Financial Aid, said her school has “created a series of loan repayment workshops that we offer to graduating students to help them to understand the different repayment options that are available.”
She said that, if a former student gets into trouble and can’t pay back the loan on schedule, “in every case, we encourage the students to speak to their loan servicer, because there are options to get out of loan delinquency or default.”
Another option may come from Gradifi. This company facilitates a system by which employers help pay off their workers’ student loans as an employment benefit.
Gradifi’s Meera Oliva said, “A company might structure a benefit offer for their employees, say, a hundred dollars a month, and that contribution is made directly to the loan.”
Oliva said over 400 employers around the country are participating, from PriceWaterhouseCoopers to small businesses with only 10 employees.
Having the debt looming over them “causes young employees to feel stressed, and delay purchasing a home, and put off contributing to their 401(k). All of those things make them at-risk employees who are likely to leave for just a little bit of extra pay,” Oliva said.
Hutson is fortunate, she said, because her career field includes partial loan forgiveness. “It has to be an income based repayment plan,” she said, but ultimately looking at the repayment bill “definitely scares me.” – Scott Orr –
About Student Debt – WIKI
Student debt is a form of debt that is owed by an attending, withdrawn, or graduated student to a lending institution. The lending is often of a student loan, but debts may be owed to the school if the student has dropped classes and withdrawn from the school.
Withdrawing from a school, especially if a low- or no-income student has withdrawn with a failing grade, could deprive the student of the ability of further attendance by disqualifying the student of necessary financial aid.
Student loans also differ in many countries in the strict laws regulating renegotiating and bankruptcy. Due payments may be a retroactive penalty for services rendered by the school to the individual, including room and board.
As with most other types of debt, student debt may be considered defaulted after a given period of non-response to requests by the school or the lender for information, payment or negotiation. At that point, the debt is turned over to a Student Loan Guarantor or a collection agency.
In the United States of America, the “Congress created a rule called the ‘Cohort Default rate’. Annually the Department of Education evaluates the proportions of students who have received student loans and have withdrawn from a college, and have a defaulted on their federal government backed loans.”
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If that nonpayment (default) rate is too high, the college will be refused the privilege of having government financial aid available to their students. According to Adam Looney, and Constantine Yannelis with the Brookings Papers on Economic Activity, in 2011, “borrowers at for-profit and 2-year institutions represented almost half of student-loan borrowers leaving school and starting to repay loans, and accounted for 70 percent of student loan defaults.”
This rule was an instantaneous achievement, ‘there were more than fifteen hundred for profit colleges were pushed out of the system’. Colleges have to change their funding habits to get in line with the government guidelines. Many colleges are continuously forced to lower their nonpayment rates, down.” The number of defaulters has not changed, it is just the way the government tracks them.
Many factors are accountable for student debt. The growing problem of student debt has become more prominent in the future decade, inspiring numerous documentaries that examine the causes and effects. One huge factor is amount of interest on the loans.
Another factor is due to the new guidelines developed by the federal government. There are now new rules deciding who can borrow, as well as how much debt they can take on. Colleges and universities have been increasing the costs for students to attend their schools subsequently increasing the amount of debt these students take on as student loans.
Reports have shown that borrowers who finished college in the early 1990s were able to maintain managing their student loans without an enormous burden. The average debt has increased 58% since over the past seven years.
The debt for students in the United States has risen from $17,233 in 2005 to $27,253 in 2012. Some blame the economy for the debt increases, but in the same 7-year period credit card debt and auto debt have decreased.
According to the Student Debt Crisis, within the past three decades the cost of attaining a college degree has drastically increased by more than 1,000 percent. If student debt had stayed constant with inflation since 1992, graduates would not be facing such burdens by student loans.