Thursday, December 26, 2013

"Student Debt Forgiveness"

By Keith Gilabert

One of the biggest challenges I faced after college was making payments on my student loans.  I got an entry level job with an investment bank and was making the bare minimum to pay for my rent and basic necessities.  At the same time I had a $248.00 a month student loan payment.  As you know, life happens…  My car broke down and I needed to make a choice, fix the car so I can go to work or pay my student loan.  I chose to fix my car and got hit with some severe penalties.  I eventually paid it off but it was extremely difficult and I had to contact the lender to make a modification on my payments because I did not want to default on my obligations.

Today, there are about 7 million student loans in default.  What is even more troubling is that the student loan market has crossed the $1 trillion mark according to the Department of Education.  In order to avoid another financial meltdown,   Congress has approved a new plan called, “Pay As You Earn.”  This program only applies to federal funded loans and it will keep out of default which is very important if you would like to buy a car or house later in life. 

This plan pegs the payment at roughly 10% of your income above the poverty line and any remaining balance is forgiven after 20 years.  Right now borrowers are looking more short-term and just trying to reduce the monthly payment as small as possible.   

The Extended Payment programs that slices your payments comes with a catch.  You pay more in interest even if the payments are reduced and the balance will go up. 
Be careful not to miss a payment.  Even if you’re late once or twice, it will haunt you for many years.  Government and private lenders such as Sallie Mae will report your late payments to credit bureaus.  I remember when I applied for my first job the company ran my credit report, you can be denied a professional license if you have bad credit.  Keep in mind, credit checks can be pulled by anyone with permissible financial purpose such as a landlord or auto lender. Defaulting on a student loan will cause severe damage to your credit report.   This can stay on your credit report for up to ten years and not only will you be denied any additional financial aid but your wages and tax refunds can be garnished.    

Don’t get discouraged about getting a student loan.  The federal student loan programs offer the most options when it comes making payments.  They offer income based repayment and they also offer deferments and forbearances are granted for a few months at a time, and they will extend the time if circumstances haven’t changed yet.

Keep in mind, the average income for a college graduate in $13,000.00 more per year than someone with a high school diploma.

About Keith Gilabert
Keith Gilabert's research interests are in the broad areas of education policy, housing policy, immigration policy and political economy. Within those areas, he has published numerous scholarly articles on the topics of residential segregation, immigrant assimilation, housing affordability, the consequences of gentrification, the determinants of student achievement in elementary and secondary school, the causes and consequences of delinquent behavior among adolescents, teacher turnover, civic participation and voting patterns, and racial inequality in the labor market. He is currently working on a book on assimilation and immigration, From Immigrants to Americans, Sacrifices America made in order to become the dominant Power in the World.

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