An article appeared recently on the website Debt.org about the $986 billion that is now owed in outstanding student loan debts. This article pointed out that things could get even worse as there is a deadline coming on July 1 that will increase the Stafford Student Loan program’s interest rate to 6.8% from the current 3.4%.
How much do you or your graduate owe?
If you or one of your children is graduating this year, it’s probably graduating into a lot of debt. In fact, according to a recent government report this year’s class owes an average of $30,000.
The good news
The good news is that Sen. Kirsten Gillebrand a Democrat senator from New York, recently introduced a proposal to help with the $986 billion in outstanding student debt. It is titled the Federal Student Loan Refinancing Act. What it would do is force the Secretary of Education to automatically refinance student loans that are federally financed and carry an interest rate higher than 4% down to a fixed 4% loan. The education department’s documents show that about 75% of all federally financed loans have interest rates of either 6.8% or 7.9%. So as you can see, a drop to 4% could save people a serious amount of money.
The U.S. House of Representatives has several other bills pending that could help decrease the burden on those who have student loans. One of these is the Student Loan Fairness Act that would require borrowers to pay just 10% of their discretionary income on their student loans debts for 10 years. After that, whatever amount is remaining would be forgiven. And Representative Joe Courtney from Connecticut has a bill that would extend the current 3.4% interest rate on Stafford loans.
Not to be left out
The Republicans have not been left out of this movement to help with student loans as they have introduced the Smarter Solutions for Students Act. The goal of this act is to connect student loan interest rates to a formula based on the 10-year Treasury note plus 2.5%. This would take Congress totally out of the issue of setting student loan interest rates.
How about 0.75%
Sen. Elizabeth Warren from Massachusetts has introduced a Bank on Students Loan Fairness Act. This would not help people who already have student loan debts but would reduce the interest rate on all new student loans to just 0.75%, which is the same rate paid by our biggest banks when they borrow money from the Federal Reserve.
It just won’t go away
One of the biggest if not the biggest problem with student loan debts is that they just won’t go away. In fact, not even a chapter 7 bankruptcy can dismiss them. And our government is getting much tougher on people who fail to make payments on their federally financed student loans by turning over their accounts to debt collectors.
You do have options
If you’re swimming in a pool of student loan debts, you do have options. It’s possible that you could actually get those debts forgiven or at least extended so that your payments would be reduced. If you go to graduate school or into the military you could get your payments deferred for some period of time and ditto if you’re unable to work. If you were to go to work in areas such as law enforcement, emergency management, public health or early childhood education, you might be eligible to have your student loan balances forgiven if you’ve made at least 120 payments.
Finally, if you have a job but are earning less than you thought before graduation, you might be able to get your payment schedule changed from the standard 10 years to an extended 25 years. This would increase the amount of interest you would pay over the life of the loan but would decrease your monthly payment.
Click here to read the article on Debt.org