In The News: Debt and The College Student

With college tuition, associated education expenses, and the cost of living what they are today, debt is a fact of life for most college students. Some studies have found that the average college student graduates with $20,000 in education related debt, as well as an average credit card debt of $4138. In the best of times, this can be a stressful burden, but in the economic circumstances of today, when many recent graduates experience difficulty in finding work in their field, student debt levels are of particular concern and are making headlines throughout the nation.

Higher Levels Of Debt

During recent years, the costs of tuition, textbooks, and other education related expenses has been creeping steadily upwards. According to a June 19, 2009, article in the Ventura County Star, the cost of going to college rose “about 6 percent last year alone.” This results in many students taking on more debt via loans and credit cards. As a July 1, 2009, USA Today article noted, using credit cards to pay tuition and textbook costs is going to be more expensive for many students, a common practice for those awaiting grant, scholarship or loan funds to be made available. That's because not only are costs going up, but colleges throughout the nation are starting to charge transaction fees to those using credit cards.

Student Loan Defaults On The Rise

Today's college student is graduating into a tight job market, with employers throughout the nation shedding employees in record numbers and unemployment numbers growing so rapidly that states are running out of unemployment benefit funds. With unemployment rates touching levels that haven't been seen in decades, the number of student loan defaults is creeping upwards, as waves of lay-offs and assorted other economic troubles seep through the nation. The current student loan default rate is just under 7 percent, which is, according to a June 21, 2009, Chicago Tribune article, “the highest in a decade.”

Federal Program Goes Into Effect

Many of those with education debt are breathing a sigh of relief because, according to a July 1, 2009, Reuters report, “a provision of the College Cost Reduction and Access Act of 2007 that reduces the monthly payments of hundreds of thousands of borrowers who qualify for the new Income-Based Repayment plan” has taken effect. CNN.com reported that important changes include “an income-based repayment program that considers income and family size.”

According to the CNN report, “the program allows borrowers to set their monthly loan payment at 15 percent of their annual adjusted gross income.” Those with income at the official poverty line would not be required to make payments on their loans until they were making more money. Student loans, for those taking advantage of these new repayment requirements, may take significantly longer than the usual 10 years to repay, which, as was noted in the article, could end up increasing the cost of the loan.

The new rules have something significant to offer those who chose public service types of careers instead of those with greater income potentials, such as public school teachers and public hospital employees. According to the Reuters report, “anyone working in a qualifying job who borrowed from the Direct Loan Program is eligible for loan forgiveness after 10 years, down from 25.” In order for those eligible to get that loan forgiveness, they must make 120 of their loan payments after October 1, 2007. As explained by Reuters, “the payments do not have to be consecutive, can be made while at different eligible positions, and must be made on the income-based or standard repayment plans.”

College students and graduates face many challenges in the current economic circumstances, as news reports throughout the nation indicate. However, by becoming informed and knowledgeable about the various financing and repayment options available, as well as by working to develop good financial planning skills and habits, today's college students and graduates can succeed despite the more difficult circumstances they face.