If you just graduated from college or about to graduate and owe something in the neighborhood of $26,000, you’re not alone. That’s the average amount of debt that today’s college graduates are now facing. Since that’s just an average, it doesn’t take much of an imagination to guess that some are in hock for $35,000 or more when they graduate.
Government vs. private financing
The big debate this year over school loans is whether they should be subsidized as they are now by the Stafford Loan program or returned to private lenders as intermediaries. The biggest issue about student debt is the “which came first the chicken or the egg” question about cheap government financing and grant giving vs. today’s high tuition costs. One group of experts feels that the abundance of cheap, government-backed loans has encouraged colleges and universities to raise their tuition rates, while the other group believes the contrary – that low-cost financing is necessary in the face of the ever-increasing cost of attending college.
Subsidized government vs. private money
Fixed-rate Stafford loans are available at 3.4% when subsidized or 6.8% when they are not. In comparison, fixed rate loans from private lenders range from between 5.75% at the low end to just under 13% for people who do not have a high FICO-scoring, cosigning parent. This means for every dollar a student borrows at 12.8%, it’s the equivalent of borrowing 29% more money than at 6.8% interest and 51% more than at 3.4% interest.
Up $303 billion
One recent report from New York’s Federal Reserve Bank is that student loan debts are now up more than $300 billion and past-do loan payments are up from 8.7% to 8.9%. Financial services risk professionals were recently surveyed and two-thirds said that the student loan payment problem is just going to get worse in the months and years ahead.
High collections at the expense of borrowers
You may not be aware of this but student loan debt cannot be discharged by bankruptcy. The federal government has debt collection contractors and has created financial reasons for them in order to encourage a high collection rate at the expense of those who borrowed from the government. In fact, in 2011 the federal government paid $1 billion and more to the subcontractors that service the loans, some of who originated many of them. Changes that were made in 2005 to bankruptcy laws gave private lenders about the same protections as those granted to the federal government. In other words, it doesn’t make any difference whether your loan came from the federal government or a private lender, it still can’t be discharged by a chapter 7 bankruptcy.
It’s done a poor job
It’s pretty clear to financial experts who have no particular ax to grind that the federal government has done a very poor job of running its loan servicing practices and policies. In addition, an entire generation of students is stuck with $1 trillion in debts that it likely won’t ever be able to repay in full.
Where we can help
As noted above, a bankruptcy cannot discharge student loan debt. However, debt consolidation could help. For example, you might be able to get a loan at, say, 5% and pay back your unsecured credit card debt as well as student loan debt at 12.8%. However, if you owe more than $10,000, you may find it difficult to get a large enough loan to pay off all that debt – unless you have some form of collateral you could use to get a secured loan. If not, call our toll-free number and let us discuss your debt with you. We have helped many people become debt-free in 24 to 48 months and it’s possible we could help you as well.