Consumer Reports: Avoiding Student Debt
AVOIDING STUDENT DEBT
You may think college is necessary to land a good-paying job, but at what price? When Consumer Reports surveyed more than 1,200 people who left college with student loan debt, 45-percent said college was NOT worth the cost. In the Consumer Reports nationally representative survey of student loan borrowers, 44 percent said theyve had to cut back on daily living expenses, about one-quarter have had to delay major financial goals like buying a house, and 12 percent have put off getting married.
So how do you avoid buyers remorse? Experts at Consumer Reports say its all in the planning.
On the Money: Gov't student loan services still a problem, GAO says
When you can't afford to pay your federal student loans, what should you do?
Call your loan servicer and explain your predicament. The name of your servicer is on your bill, giving you information about what you owe and how payments are collected. If the servicer behaves correctly, the person you get on the phone should explain the options available if you can't pay and tell you if you qualify.Related Articles
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But often that process doesn't go as it should. Borrowers have trouble reaching their servicers, and too often the people on the other end of the phone aren't very helpful, according to government studies. Even worse, some of the servicers have pushed borrowers to pay when the borrowers are in fact entitled to temporary relief.
The result has been that too many people have ended up defaulting on their loans, and the government has missed the chance to eventually get borrowers back on track. Since the Direct Loan Program is federal, taxpayers ultimately take the hit if borrowers don't pay back their loans.
At the end of 2015, 19.7 percent of student loan borrowers were considered delinquent by the Department of Education. In other words, either because the borrowers couldn't pay, didn't want to pay, or were mixed up about what to do, they were more than 30 days behind on their student loan payments.
Although the delinquency rate has been improving with a better job market, and the department has responded to criticism about the student loan program, a May US Government Accountability Office study says the servicers -- under contract with the government -- still are not being watched well, and that complaints aren't being tracked. Borrowers are having trouble getting information they need over the phone.
The report concludes that if borrowers aren't able to obtain the information they need to manage their loans, then they will be "more at risk for delinquency or default."
In past government reports, research has identified failures such as servicers requiring payments even when borrowers should have been allowed a grace period of six months after graduation. During that time, graduates aren't required to pay their loans because they still are securing jobs and getting their feet on the ground.
The reports also have noted that the government contracts with servicers have rewarded them for putting pressure on borrowers to pay rather than explaining programs that cut payments when people are out of jobs or in low-paying jobs. In 2015, the GAO calculated that half of people making student loan payments would have qualified to pay less, but only 13 percent knew to ask or press the matter.
The Education Department, amid criticism, has beefed up efforts to steer more borrowers into payments they can afford, and last year reported a 48 percent increase in borrowers making use of a program that provides affordable payments. It's called "income-based repayment." Nearly 4.6 million people recently had monthly payments reduced temporarily because their jobs haven't been paying enough to cover the normal payment.
But with the GAO still noting concerns, borrowers should ask the right questions for relief.
To understand if you will qualify to get your payments reduced based on your income, see the government's income-based repayment information at studentaid.ed.gov. Try this calculator to see how a reduction based on your income will help you each month.
Note that the help only is provided for federal loans, not private loans from banks or other lenders. And even if you qualify for help with federal loans such as Stafford Loans, you don't avoid paying back the government forever. When your pay goes up, so will your monthly payments. If you still owe money after 20 years, you may be forgiven.
Also, note that if you work in public service jobs, you can get your loans forgiven. If you work in state, local or federal government, consider breaks given to everyone from nurses, elderly aids, librarians and teachers to police and the military.
And beware of refinancing federal loans. If you lose a job, or end up with financial troubles, you won't get help from private lenders.
Hillary's Oprah Moment for Young Tech Entrepreneurs
July 1 2016Hillary's Oprah Moment for Young Tech Entrepreneurs
Patrice L. Onwuka
Former Secretary of State Hillary Clinton wants to give entrepreneurs more cash to take risks and start businesses. Too bad shes not proposing cutting taxes for young workers (and all workers) or offering tax credits.
Instead, as part of her technology agenda, she wants to dole out federal student loan forgiveness like Oprah gave out cars back when she was on TV. You get debt forgiveness, and you get debt forgiveness, and you get debt forgiveness.
The targets of her largess or more correctly, our taxpayer largess are would-be entrepreneurs and early joiners in startup companies who would be permitted to forgo payments on their student loans for up to three years.
In addition, businesses which provide social benefits to distressed communities however that is defined or provide measurable social impact and benefit would be permitted to apply for debt forgiveness up to $17,500 after five years. How will the latter even be measured? By stray puppies saved from getting hit on the roads or homeless Americans who are fed a meal? Its easy to see how this can easily be abused.
The Washington Post reports:
We need more job creators and we need more young people starting businesses, the presumptive Democratic nominee told a crowd of coders inside a Denver tech training facility and workspace that houses several start-ups. She was on a brief campaign swing through the battleground state of Colorado.
Speaking later in Los Angeles, at a town-hall style meeting with digital content creators, Clinton called student debt a huge burden that could hobble young people into their 40s and 50s, blocking them from buying homes or starting businesses.
During the three-year period that entrepreneurs are building their businesses, interest would also stop accruing on the loans as MarketWatch explains. To qualify for the program, you cant just say you started a business, but must show articles of incorporation filed with state officials. And who would be verifying this information? Likely a new layer of paid bureaucrats.
An aide explained in Mic:
A smaller proportion of millennials today are starting new ventures as compared to their predecessors, the Clinton aide said. This is not for a lack of desire surveys show that Americas millennials are aspiring, enterprising, and independent-minded.
The aide pointed to a recent survey finding that 51% of millennials aspire to start businesses. But nearly half of millennials, or 48%, said paying off student loans has impacted their ability to start a business, the aide said.
They are correct that millennials arent starting businesses, but this is not the best way to get there.
This is an effort to show how much of an entrepreneurial cheerleader Clinton is, but wearing a uniform doesnt mean youre on the team. Clinton has been a notorious opponent of the on-demand or sharing economy, calling for crackdowns on companies like Uber and Airbnb. She espouses an outdated view of the economy and workforce, where established businesses and unions who have curried favor with politicians lock or chase new competition out of the marketplace by enforcing unfair and unfavorable rules.
Giving a subsidy to some students with debt and not others is a way of picking and choosing among debt holders, especially if these are young people who are likely to be in a better position to repay those loans in the future as one writer notes in Inside Higher Ed:
If Clinton wants to give away money to people who will eventually be wealthy, this proposal is a great idea. People working in tech start-ups will likely go on to earn a fairly high income in life. If a young entrepreneur has a degree from a good school and highly valuable skills, she can still get a high-paying job even if the company fails. If her company succeeds, she will eventually have a lot of money.
That person doesnt need an interest-free loan. What she needs is a program that allows her to pay a low amount or nothing toward her student loans while she makes little to no money launching her business. Interest will accrue, but once she earns a lot, shell be able to pay everything back. If she never makes a lot, the loans will eventually be forgiven.
Of course, that plan is already available to all federal student loan borrowers. Its called income-based repayment, it is used by many people, and it protects all borrowers, whether theyre innovators or not. Clintons plan is a giveaway to kids who went to Stanford and attendTEDx talks for the networking opportunities.
Couldnt put it better.
Hillary Clinton Wants a 3-Month Halt on Student Loan Payments
A centerpiece of Clintons plan is an executive order that would give federal student loan borrowers a three-month break from making payments. During that window they would be able to consolidate their loans or sign up for other programs aimed at reducing their monthly payments. Those who are delinquent or in default would get additional rehabilitation options, the campaign said, though aides provided no details on those options.
Clinton is also seeking to eliminate college tuition at public, in-state institutions for families making $125,000 or less per year. The campaign said the policy would roll out gradually, first for families making $85,000 or less and increasingly the threshold by $10,000 annually through 2021.
The campaign did not provide details about how much the plan would cost or how Clinton proposes paying for it. It was unclear whether she would implement it using executive actions or need congressional approval.
A third proposal from Clinton aims to restore year-round Pell Grant funding so students can receive financial aid for summer classes.
Planning ahead helps dodge student debt
SAN ANTONIO - You may think college is necessary to land a good-paying job,but at what price? When Consumer Reports surveyed more than 1,200 people who left college with student loan debt,45 percent said college was NOT worth the cost.
In the Consumer Reports nationally representative survey of student loan borrowers, 44 percent said theyve had to cut back on daily living expenses, about one-quarter have had to delay major financial goals like buying a house, and 12 percent have put off getting married.
So how do you avoid buyers remorse? Experts at Consumer Reports say its all in the planning.
To avoid scrambling to figure out how to pay for it all after graduation, have a plan to pay for college before you even apply.
First, Consumer Reports says, do some soul-searching. Ask yourself what you want to get out of college. College is an expensive place to figure out what you want to do with your life. The more years you spend, the more debt you may have to take on. If youre not sure, consider options like taking a gap year.
Next, look at the costand think about how much financial aid you can anticipate. A good rule of thumb is not to borrow more than you expect to earn in the first year after you graduate.
Another way to avoid debt is to start off at a community college and transfer to a four-year institution after a year or two. But make sure community college credits will transfer where you want to finish your degree.
All Consumer Reports material copyright 2016 by Consumers Union of US Inc. All rights reserved. Consumer Reports is published by Consumers Union. Both Consumer Reports and Consumers Union are not-for-profit organizations that accept no advertising. Neither has any commercial relationship with any advertiser or sponsor on this site.