Default On Student Loans

The American student loan crisis has been in full effect since 2008. With over $1 trillion dollars taken out in total, the average student loans debt stands at about $37,000 per person. In fact, student loans have surpassed credit cards and car payments as the number 1 type of consumer debt. The problem is much worse than we would think though. Almost 45% of borrowers who took out student loans between 2009-2011 had their interest rates raised. And among a recent group of graduates, 35% were paying above 10 percent, with some being forced to pay nearly 30%. If these trends continue, the government may soon be on track to make student loans default free, which means that if you don’t repay them, they’ll just go away.

Default On Student Loans

You are going to receive $10,000 per year for 20 years. How much do you pay back each month?

$10,000 ÷ 12 months $833.33 per month

If you pay back only $833.33 each month, how long will it take before you have paid off your loan?

20 x $833.33 $16,666.67

So, if you start paying back immediately after receiving your first payment, you’ll still need about 14 years until you’ve paid off the full amount. If you delay your payments just five days, you’ll have enough money left over at the end of the fifth week to cover another two weeks’ worth of payments!

Your friend owes $50,000 on her student loans. She gets a job making $12/hour, working 40 hours a week. Her loan payment is $240 per month. How much does she make a year?

$240 ÷ 52 weeks $46.61

She makes $46.61 per week (or $230 per month), less than half what her loan payment is. So, even though she’s working hard and earning less than half what her monthly payment would be, she’s still ahead.

Calculate the number of years it will take your child to pay off his student loan debt if he earns $80,000 a year.

For simplicity, assume that the interest rate on the loan is 5%.

80,000 x.05 4,000

The total of his payment each month is $480.00.

80,000 × 480 32,640

32,640 ÷ 12 2,864

Default On Student Loans

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Default On Student Loans

Debt Consolidation Loans

Debt consolidation loans allow you to combine several smaller debts into one larger debt that is easier to manage. You can use these to eliminate interest, lower monthly payments, and even pay off the loan sooner. If you have many different types of student loans, a debt consolidation loan may be the best option for you. If you’re already paying down some of your debt, talk to your lender before consolidating your debt. Most lenders want you to make at least a partial payment before they will consider giving you a loan.

Private Student Loans

Private student loans are similar to traditional bank loans. However, instead of having your debt serviced by a financial institution (like a bank), private student loan companies take out the risk. These companies charge higher interest rates than banks do, though a good rate should balance this out. When searching for a private student loan company, look for companies that have been in business for over 10 years and have a high rating from A+ to A- credit agencies. After researching several options, choose the lender that offers competitive interest rates.

Federal Stafford Loan

The federal student loan requires repayment until after six months after leaving school/college. In general, these loans offer lower interest rates compared to private loans. If you qualify for an income based repayment plan, this program generally pays back less money each month than a standard loan would. Another benefit of the federal student loan is that the government guarantees the amount you borrow if you default. However, if you’ve already received aid when you went to college, you probably won’t qualify for federal assistance again.

Default On Student Loans

A bill introduced in Congress, the College Cost Reduction and Access Act, would eliminate federal loan limits for undergraduate students.

In California, the state legislature passed Senate Bill 967, which would allow public universities and community colleges to offer free tuition to residents who attend college full time.

Massachusetts voters approved Question 4, which will provide $400 million over five years to fund financial aid programs at public universities.

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