Student Loans: Taking on New Loans and Repaying What You Owe

Student loan dollar amounts are raising red flags and the alarm bells are ringing. Paying for an education is progressively more difficult, but accruing student loans is also an increasingly risky decision in part because of stagnant wages.

There aren’t many clear-cut answers yet on how this complex crisis can be resolved, but here are some facts you need to make the best decisions possible for your situation:

  1.  Student Loan debt is high – and people are defaulting. Americans owe more in student loan debt than in credit card debt. Credit card debt has dropped some in recent years and is under $700 billion. Student Loans account for $870 billion in consumer debt – and people are defaulting at double the rate of their other debts.
  2. Collection powers held by student loan issuers are tremendous.At one time, people developed a bad habit of taking out student loans and then filing bankruptcy on the debts. Now there is strict legislation in place to prevent that from happening.
    1. Unlike most other unsecured debts, student loans remain collectible for an unlimited amount of time. The lender can attach property, taxes and even social security income for as long as it takes for the debt to be satisfied.
    2. Bankruptcy is almost always out of the question.
    3. Proving a qualifying disability is very rare.
    4. Attorneys specializing in student loans are needed
  3. If you are a student now:
    1. You don’t have to borrow the full amount offered! It is difficult not to project into the future and overestimate what you will actually be making upon graduation. Just ask a few graduates about their experience! Be conservative. Take only what you need for books and tuition. Try to find another income plan for your living expenses. One student we talked to said, “I didn’t know that I could take out a loan for less than they offered. They just put the paper in front of me and I signed it.”
    2. And don’t gamble with the award! Another student we talked to was in crisis because she had gambled and lost her entire student loan award at a local casino located near her university the first week of school. Only her tuition had been paid. Neither her books nor board had been paid. Not only does this constitute a very difficult phone call home to mom and dad – misusing her student loan award in this way is a federal crime.
  4. Did you know that if you work in the non-profit sector for 10 years that your student loans may be eligible to be forgiven? Check out www.studentloanborrowerassistance.org for helpful guidance on options you may have for solving delinquency, loan forgiveness or reduction in monthly payment.

Read more about Student Loans from the Federal Reserve Bank of New York: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

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