Sunday, March 30, 2014

The $1 trillion student loan crisis: How you can help

"One in 10 (college) graduates accumulate more than $40,000" in student loan debt. --- Forbes magazine, "How the $1.2 trillion College Debt Crisis is Crippling Students, Parents and the Economy.", August 2013.

LOCAL CONTACT: My KXL 101.1 FM radio morning news broadcast with Steve Leader and Rebecca Marshall mentions a local credit counseling service. Here's the contact info: Community Housing Resource Center, 360-690-4496. 103 E. 29th Street, Vancouver, WA. Click here, for the coverage.

Almost half the students attending the University of Oregon this year have taken out student loans to help pay for the cost of getting a degree there. That's no surprise because those costs can run as high as $41,754 a year for a non-resident student. ($24,582 for residents).
For a freshman entering the University of Washington in Seattle, the cost can reach $46,608 for a nonresident, $27,034 for an in-state student. Washington State runs $40,778 for a nonresident, $27,696 for residents.
Based on a look at the Web sites of for-profit schools such as the University of Phoenix, ITT Technical Institute or City University, it is much tougher to figure out those tuition costs and fees. We can guess that while those costs may (or may not) be less than at public schools, they still are substantial. (click here.)
Across the board, the cost of getting a college degree has been increasing at three- and four-times the overall inflation rate every year for years. The American Dream is out of reach for many.
And those people who suck it up and do get into college are paying a lingering and heavy price. Skyrocketing tuition and other costs at public and private colleges throughout the nation has forced nearly half (44 percent) of all students to take out loans. (68 percent of low-income students borrow money to attend college.) Seventy percent of 2012 college graduates had student loan debt, averaging $26,000 to $29,400.
This year, the total amount of student loan debt crossed over the $1 trillion mark, reported the Federal Reserve Bank of New York. Many are saying this is a looming financial crisis facing the nation’s economy.
If 10 years ago mortgage lenders were telling anyone with a beating heart that they could borrow gobs of money to buy a house, now lenders are telling students the same thing. Lots of young people who should have never borrowed money are now in a financial hole --- facing true hardship, which will prevent them from buying houses, saving for retirement or even moving out of their parents’ basements.
“Some have put off buying a car, or having a family” because of their debt burden, said a recent Wall Street Journal article.
Of great concern is the number of people falling behind on their student loan payments. Delinquency rates on car loans and mortgage debt is running about 3.4 percent and 4.3 percent, respectively. Student loan delinquency (payments behind 90 days or more) has climbed to 11.5 percent. One in seven borrowers has defaulted.
By the way, student loan debt is nearly impossible to discharge in bankruptcy. You’ve got to prove undue hardship, which isn’t easy.
Education funding cuts
We know why the cost of a college education at least at public schools has been dramatically increasing. During the Great Recession, states cut funding for education as tax revenue dwindled and budgets were reduced. In-state tuition at public four-year colleges increased in the 10 years through 2012 by an average of 8 percent a year. In 2013-14, average tuition was up another 2.9 percent to $8,000. The smaller increase is a relief as some states are even starting to restore funding to higher education thanks to improving tax revenue.
But that won’t likely reduce costs, just slow the increases. And it won’t help those who now are borrowing big to get an education. The cost of college has been outstripping family incomes for years.
Public universities and exclusive schools such as Princeton and Stanford are open about what it costs to get an education on their campuses. Elite schools are particularly well-funded and can offer substantial scholarships to outstanding students. The real underbelly of the student loan crisis seems to be centered on for-profit schools that target lower-income average students eager to get some kind of training and a job.U.S. Senator Tom Harkin, D-Iowa, led a Senate Committee investigation into for-profit schools and accused them of "enrolling students just to get at their financial aid" money," said the New York Times in a story about Harkin's committee in 2012.
Much of the money going to for-profit schools is from taxpayers through federal student lending programs. In the most recent reporting year that total came to $32 billion. Unfortunately, the report said the majority of students who enroll, leave without getting a degree. The only thing worse than student debt and a degree is lingering student debt and no degree to show for it.
"In this (Senate) report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayers dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation," Harkin said. "These practices are the not the exception--they are the norm." Those who do complete their course-work may find that the credit they earned are NOT transferable.
How you can help
Why are we bringing this up at As grandparents we often are being asked to finance schooling for our kids and grand kids. Make sure you know what they're getting into before signing on to a plan. Caution them that borrowing money for school is generally a bad idea, especially if the loan is being pushed by a for-profit institution.
What can you do to help if a family member wants to take on student debt or is buried in student debt?
Here’s what the experts say:
- Encourage your student to borrow as little as possible. Don’t be talked into taking on debt if you can avoid it. Make sure the certification or degree you are seeking matches up in income with the debt payments you will be facing. For-profit schools are coming under increasing scrutiny for handing out loans to below-average students, who may drop out and default on the loans or won’t be able to repay the loans because of the low-wage jobs that they will qualify for. A $35,000 a year job is not going to support a household and a big load of student debt. It will be a nightmare.
-Pay off private student loans first. There’s less forgiveness there and more penalties than federal loans.
-Consider a direct deposit payment plan. By doing that, you may get a reduction in the interest rate you’re paying.
- Deduct the loan payment. You can deduct your student loan payment on your federal income tax, up to $2,500 a year.
-Avoid a quick fix. Avoid Web sites or lenders who promise to “slash” your debt.
-Pay toward the principal. Sign-up for an income-based repayment plan.
-If you and your family have time before someone goes go to college, set up a 529 tax-free savings plan in advance, so the money will be there. Shop and compare for 529 costs and earnings. Also, prepaid college tuition plans can lock in today’s tuition costs.
If you or a loved one are slammed with student debt, look into a loan forgiveness service. For instance, if you volunteer with AmeriCorps some of your debt can be “forgiven.”  There may be other options if you work with a credit counselor.
The fact is that 60 percent of those who graduated from college in 2012 went out the door carrying student debt. Of the 20 million people attending U.S. colleges, 12 million have borrowed money to do it. The average student debt for those who’ve received a four-year degree is $26,000 to $29,000. Student loan debt is the only debt that rose through the Great Recession. According to the Pew Research Center, 40 percent of households headed by someone 35 years of age or younger are burdened by student loan debt. There’s more student debt out there than credit card debt. It’s not going to go away.
For More:
Student debt reaches $1.2 trillion, Forbes, click here.

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