Are student loan repayment programs just making things worse?


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This presentation suggests that the student loan repayment options now available may just be making things worse - in terms of student loan debts. It also offers suggestions for reducing the problem

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Are student loan repayment programs just making things worse?

  1. 1. Helpful Financial Information from National Debt Relief … Are Student Loan Repayment Programs Just Making Things Worse? Student loan repayment programs were set up by the government to help pay for college. Just as the nation is starting to improve their mortgage and credit card debts, we see college debts continue to rise to terrifying heights - now more than $1 trillion; In a recently published report in, the total student debt from 2004 to 2012 grew from $364 billion to $966 billion.(Continued …) Brought To You By:
  2. 2. Helpful Financial Information from National Debt Relief … Now student loan debt is more than $1 trillion. The majority of the borrowers are owed by those below the age of 40 who owe 66% of the total college debt. Student loans have continued to plague the country in general. It is ruining the financial future of households, especially those of the young adults. Some people say that it is not really so bad because the average debt of $25,000 has a very high variation between the 39 million borrowers. 40% of them owe $10,000 or less, 30% owe $10,000 to $25,000, 3.7% owe more than $100,000, and 0.6% owing more than $200,000 in accumulated college debts. Why are so many loans delinquent? Despite the majority owing less than $10,000, why are there a lot of student loans in deferral or delinquent? Why is the default rate of this debt continually rising when mortgage and credit card debts are not? Obviously, consumers know what to do with their debts but the student loan problem seems to be too great for them to manage it. While the government is trying to help borrowers through the student loan repayment programs, you cannot help but wonder if it is really making things okay. Is it really helping or is it making things worse? What are the different programs for student loan payments? First, let’s identify the different options that students have when it comes to paying off this debt. According to the information found on the Student Aid website, here are the different student loan repayment programs: • Standard Repayment Plan. This allows borrowers to pay less on interest and a fixed amount of $50 or more per month. This can be for up to 10 years. • Graduated Repayment Plan. Through this plan, you will end up paying more compared to the standard plan. You will start off with a lower payment that will increase every two years. • Extended Repayment Plan. This permits you to make lower contribution than the usual 10-year plan since the payment period can be stretched to 25 years. The payments can be either fixed or graduated. The qualifications will depend on the type of debt that you owe. • Income-Based Repayment Plan. This means your monthly payment will be 15% of your discretionary income. This can go as long as 25 years to pay. At the end of the 25 years, the debt may be forgiven. • Pay As You Earn Repayment Plan. This plan allows you to pay only 10% of your discretionary income. The payment plan can take up to 20 years and unpaid amounts by that time are forgiven. • Income-Contingent Repayment Plan. Your payment will be computed based on your adjusted income, family size and your student loans. This plan can take up to 25 years to complete after which, the debt that is unpaid will be forgiven.
  3. 3. Helpful Financial Information from National Debt Relief … • Income-Sensitive Repayment Plan. This computes your payment based on your annual income. As your income changes, so will your contributions. This plan will only take 10 years to complete. Source: Take note that you will likely have to pay income tax on forgiven debt. Each of these also require that you to qualify for them. Factors such as your income and proof of financial hardship are among the requirements for some of these student loan repayment programs. There are also other types of student loans that have different set of payment options. You need to understand your options in order to determine if they will make your student loans worse or not. Three problems with repayment programs for college debt Now that we understand the various options to get out of student loan debt, let us discuss why they could be making things worse. We have found three different reasons why student loan repayment programs may actually be doing more harm than good. It can make students reckless with borrowing We need to seriously teach our children how to borrow money wisely because it is clear that they have no idea how to go about it. In most cases, students do not give much thought to borrowing because they know that there are programs that will help them when payment time rolls around. If they know that they have a safety net, they may be encouraged to take the debt plunge even before they fully understand the implications of their actions. More than that, it may teach them to rely on these programs just to get themselves out of debt. If there is no repayment plan available, you can be Since the government-backed repayment programs ensure that the loaned amount will be repaid, lenders are becoming too complacent in approving and issuing student loans. If the government will not back up the defaulted loans of student loan borrowers, the lenders will be forced to impose higher rates. That rate should make students think twice before they get a loan. It puts a strain in the budget of the government - and in the end, taxpayers. Lastly, the student loan repayment programs put a strain in the government budget. Instead of being able to put more funding in other programs, they are forced to carry the student loans. And who is suffering in the end? The recipients of other benefits and the taxpayers who will eventually be forced to pay more just so the government can afford funding the programs they have set for the country. The bottom line is that the student loan repayment programs do not deal with the real problem - irresponsible borrowing and lending. Lenders have to make sure that their borrowers’ repayment ability is checked thoroughly before lending. Just like in debt relief, you do not just pay for the debt, you have to understand what got you there in the first place. There are many strategies to help you stay out of debt and that is what we should be focusing on right now. What is the best way to deal with the student loan problem? While the student loan repayment programs are trying to help, it is not the whole solution. If you really want to eliminate student loan debt, we need to stop the borrowing - or at least, the irresponsible borrowing. Here are some suggestions that might be worth considering.
  4. 4. Helpful Financial Information from National Debt Relief … Make sure students understand what they are getting themselves into. When you ask a new graduate who is trying to pay off their debts for the first time, they will always complain that they wish they knew more about it before taking out the loan(s). All students have to be oriented, tested on their knowledge and asked to come up with a payment plan for the student debt. That should even be made part of the requirements before being approved of a student loan. It is important that they know what will happen if they fail to pay their debts. Revise the process by which the lenders approve of student loans. The lenders have to impose stricter processes that will help filter students who have more of an ability to pay back the debt. This needs to be well thought out because the borrowers generally have no credit history at the time of application. Regulate the college fees to keep them from going up. According to, a state college now costs approximately $22,000 while a private college costs $44,000. It keeps getting higher as the years go by and the government has to do something about these increases. Set a limit on how much a student can borrow. This has to be based on the industry that the student wants to work in. For instance, if a student wishes to be a teacher who earns an average of $30,000 to $40,000, they should not be allowed to borrow up to $100,000 worth of debts. That is just crazy. Although we have to admit that the student loan repayment programs have good intentions and have helped some borrowers, the negative effects may prove to be destructive in the long run. In case you need help with your student loans, National Debt Relief recently launched their student loan program that provides consultation services to help borrowers with their debts. Their debt experts can help borrowers analyze their debt situation and point them to the right student loan repayment program that is best suited for them. The service includes the paperwork that will help the borrower enter into the program. The charge for this service is a one time flat fee that will be placed in an escrow account. Once the client is satisfied with the results and the documents done by National Debt Relief, that is the only time that the service fee will be withdrawn. This fee is a one time flat fee. There is not maintenance or upfront fees that will be charged.
  5. 5. Helpful Financial Information from National Debt Relief … Does this sound familiar? • You are tired of worrying about money… • You are losing sleep due to mounting credit card debt… • You are fighting with your partner about the bills… • You are living paycheck to paycheck… • You are falling behind on your debts… • You are losing hope… It’s time to talk with National Debt Relief! Call Toll Free 1-888-275-4499 Now! Or Go To student-loans-quote-now/?src=PDFs