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Student Loan Debt Could Have Lasting Impact

February 22, 2012
By J.W. JOHNSON JR. - Staff Writer , The Intelligencer / Wheeling News-Register

For the first time ever, student loan debt in 2011 outweighed the amount of credit card debt in the United States, and many economists are predicting recent college graduates will be paying on those loans until their own children are set to go off to college.

About two-thirds of graduates with a bachelor's degree had debt, with the average student in the Class of 2010 owing $25,250, according to the Project on Student Debt, a national organization that tracks the level of student debt across the country. That's a 5 percent increase from 2009, the organization said.

And, in an economy that has fewer jobs even for those with specialized skills, many of those graduates are having a hard time figuring out a way to pay back that debt and also start a career or a family.

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With student loan debt becoming the largest source of debt in the United States, some economists are concerned the overall economy could be affected.

Peter Holloway, senior vice president for Hazlett, Burt and Watson in Wheeling, said solving the debt problem is not something that can be done overnight.

"There are no easy answers," he said.

Not much can be done to help alleviate the debt, Holloway said, because the agreement between the borrower and lender is fairly straightforward.

Fact Box


Whether you just graduated, are taking a break from school, or have already started repaying your student loans, these tips will help you keep your student loan debt under control.

If you're having trouble finding a job or keeping up with your payments, there's important information here for you, too.

1. Know your loans: It's important to keep track of the lender, balance, and repayment status for each of your student loans. These details determine your options for loan repayment and forgiveness.

2. Know your grace period: Different loans have different grace periods. A grace period is how long you can wait after leaving school before you have to make your first payment. It's six months for federal Stafford loans, but nine months for federal Perkins loans. For federal PLUS loans, it depends on when they were issued. The grace periods for private student loans vary, so consult your paperwork or contact your lender to find out.

3. Stay in touch with your lender: Whenever you move or change your phone number or email address, tell your lender right away. If your lender needs to contact you and your information isn't current, it can end up costing you a bundle. Open and read every piece of mail - paper or electronic - that you receive about your student loans. If you're getting unwanted calls from your lender or a collection agency, don't stick your head in the sand - talk to your lender!

4. Pick the right repayment option: When your federal loans come due, your loan payments will automatically be based on a standard 10-year repayment plan. If the standard payment is going to be hard for you to cover, there are other options, and you can change plans down the line if you want or need to. Extending your repayment period beyond 10 years can lower your monthly payments, but you'll end up paying more interest over the life of the loan. One important option is the Income-Based Repayment program. It can cap your monthly payments at a reasonable percentage of your income each year, and forgive any debt remaining after 25 years of affordable payments.

5. Don't panic: If you're having trouble making payments because of unemployment, health problems, or other unexpected financial challenges, remember that you have options for managing your federal student loans. There are legitimate ways to temporarily postpone your federal loan payments, such as deferments and forbearance. But beware: interest accrues on all types of loans during forbearances, and on some types of loans during deferment, increasing your total debt, so ask your lender about making interest-only payments if you can afford it.

6. Stay out of trouble! Ignoring your student loans has serious consequences that can last a lifetime. Not paying can lead to delinquency and default. For federal loans, default kicks in after nine months of non-payment. When you default, your total loan balance becomes due, your credit score is ruined, the total amount you owe increases dramatically, and the government can garnish your wages and seize your tax refunds if you default on a federal loan.

7. Lower your principal if you can: When you make a federal student loan payment, it covers any late fees first, then interest, and finally the principal. If you can afford to pay more than your required monthly payment - every time or now and then - you can lower your principal, which reduces the amount of interest you have to pay over the life of the loan. Include a written request to your lender to make sure that the extra amount is applied to your principal.

8. Pay off the most expensive loans first: If you're considering paying off one or more of your loans ahead of schedule, or trying to reduce the principal, start with the one that has the highest interest rate. If you have private loans in addition to federal loans, start with your private loans, since they almost always have higher interest rates and lack the flexible repayment options and other protections of federal loans.

9. To consolidate or not to consolidate: A consolidation loan combines multiple loans into one for a single monthly payment and one fixed interest rate. If this is appealing, here are some pros and cons to consider. You can consolidate your federal student loans through the Direct Loan program, and this calculator can help you figure out what your interest rate would be. For private consolidation loans, shop around carefully for a low or fixed interest rate if you can find one, and read all the fine print. Never consolidate federal loans into a private student loan, or you'll lose all the repayment options and borrower benefits - like unemployment deferments and loan forgiveness programs - that come with federal loans.

10. Loan forgiveness: There are various programs that will forgive all or some of your federal student loans if you work in certain fields or for certain types of employers. Public Service Loan Forgiveness is a new federal program that forgives any student debt remaining after 10 years of qualifying payments for people in government, nonprofit, and other public service jobs. There are other federal loan forgiveness options available for teachers, nurses, AmeriCorps and PeaceCorps volunteers, and other professions, as well as some state, school, and private programs.

Source: The Project on Student Debt

"It shouldn't be something that came as a surprise," he said. "It sounds harsh, but if you borrowed it, you owe it."

Because of that, Holloway said it is important to read and thoroughly understand what the terms of the loan are before signing. He also advised that students be reasonable and weigh all possible outcomes for after college.

Holloway said the problems created could include recent graduates not being able to get home loans or other financial help they may need to help them begin their life after education. He added those individuals would also likely have less disposable income to spend, which could have an effect on the economy as a whole.

"With the economy right now, there are few jobs available and most people assume they have a job at the end of college," he said. "It creates a crux of problems."

Compounding the problem is that college costs continue to soar. Most public institutions increase tuition by 5-7 percent per year, and living away from home during college has become an increasingly expensive proposition.

One local resident whose daughter attends West Virginia University said he and his wife pay about $700 per month in rent for a one-bedroom apartment in Morgantown. On top of that are food costs, transportation and then just everyday spending money for a young adult.

The Project for Student Debt, in its "Student Debt and the Class of 2010 Report," issued late last year, found that the states with the highest average debt for 2010 graduates are all in the Northeast and Midwest, while states with the lowest debt are concentrated in the West. New Hampshire had the highest average debt at $31,048, according to the report, followed by Maine at $29,983. Utah and Hawaii had the lowest average debt at $15,509 and $15,550, respectively.

The average student loan debt in West Virginia is $23,678, while Ohio had average student loan debt of $27,713 and Pennsylvania, $28,599.

"Student debt continues to rise, but debt levels vary tremendously from school to school and state to state," said report author Matthew Reed.

"Nationally, two-thirds of the Class of 2010 entered a tough job market with debt averaging $25,250, up from $24,000 for the Class of 2009. Some thought the jump would be even higher because of the economic downturn, but increased grant aid helped at least partially offset lower family incomes and higher tuitions while the Class of 2010 was in school."

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