Student Debt a ‘Life Sentence’ for Millions of Americans

Haley Walters is five years away from earning her law degree. If everything goes according to plan, she will be under a mountain of $100,000 in student debt by the time she enters the workforce. Like millions of Americans, Walters is paying a steep price for an education that will likely weigh her down financially for much of her adult life.

“I think the student debt crisis is truly a life sentence,” the 19-year-old Californian told AFP.

With 45 million borrowers owing some $1.6 trillion, the debt burden of American college graduates has exploded in recent years.

It has emerged as a key issue in the 2020 presidential campaign, with candidate Bernie Sanders unveiling an ambitious plan Monday to erase all student loan debt.

“Somebody who graduates from a public university this year is expected to have over $35,000 in student loan debt on average,” said Cody Hounanian, program director of Student Debt Crisis, a California non-profit that assists students and fights for reforms.

According to official statistics, 71 percent of US students are burdened by such debt, with minorities the hardest hit.

“Black women particularly are the most impacted group with the highest student debt total per graduate,” Hovnanian said.

Despite scholarships and financial aid available to many, the cost of higher education is such that the majority of students are unable to repay their loans on schedule.

“When borrowers leave school, they’re in a program that’s supposed to take 10 years… but more and more are enrolling in federal programs that are actually 20 or 25 years in length,” Hovnanian said.

In the long term, the loan balance for such people increases, interest accrues, and the debt burden just keeps going upwards, he added.

Hovnanian spoke of his own experience as an example.

“I had $30,000 in student loan debt, I pay over $150 a month, and that’s in one of these affordable repayment programs,” he said. “By doing that, my loan balance is actually increasing. I’m not covering even the entire interest that’s accrued.”

“I’m paying every month,” he added, “just to be more in debt.”

– ‘System isn’t working’ –
Several experts interviewed said it’s not unusual to have two generations in one family burdened with student debt.
That’s the case for Walters, who just graduated with a two-year degree in political science from Pasadena City College, near Los Angeles.

While she managed to go through that school without accumulating debt, come autumn she will be entering the prestigious — and much more expensive — University of California Berkeley, with a law degree the ultimate goal.
Despite being awarded scholarships, Walters said she will still have to take out loans to pay for nearly $20,000 in annual fees.

“That is basically going to turn into a loan after loan after loan… each with individual interest rates and individual payments,” Walters sighed.

She said she grew up listening to her mother, 58, bemoan the student debt that still haunts her.
“I would hear my mom talk about… how it was basically crippling our finances,” she recalled.
“You know, we couldn’t go on vacation, sometimes I didn’t get school supplies for the new school year, sometimes we got fewer birthday presents.”

Walters said she hopes student debt will be a key issue in the 2020 White House race.
For some candidates, it is already front and center.
– ‘The system isn’t working’ –

Sanders’s “revolutionary” bill aims to erase all student loan debt and make public colleges tuition-free — and he wants the financial industry to help pay for it.
“The American people bailed out Wall Street,” Sanders said, referring to lenders deemed “too big to fail” during the late 2000s recession.

“Now it is time for Wall Street to come to the aid of the middle class.”
Democratic candidate Elizabeth Warren also has a debt cancellation and free public college plan.

“My dad grew up in an extremely poor family in southern California,” said Walters. “The only reason he went to university was that it was free.”

Tuition, however, is not the only financial burden of students.

In California, for example, housing and living expenses represent more than half of the $35,000 needed annually on average for public universities.

Hovnanian said it was crucial to address those issues to ensure students don’t end up saddled with heavy debt before starting their professional lives.

“The system isn’t working for students,” he said. “It’s working for profiteers, for big companies and for those who are making money off of students and borrowers.”

source: usa.inquirer.net

How to Find the Best Private Student Loan Terms

To keep up with rising education costs in the midst of shrinking savings and scholarship funds, many students are turning to private student loans to fill in the financial gaps to pay for college.

According to FinAid.org, private student loan volume is expected to return to the 25% annual growth rate unless there is another increase in federal loan limits or increased availability of federal student loans. The organization also expects private student loan volume to grow at double-digit rates and yearly private education loan volume will exceed federal student loan volume by around 2030 if federal loan limits do not increase every year.

Students can get private loans from banks, credit unions or other lending institutions to help cover remaining college expenses after scholarships, grants, federal loans and other types of financial assistance fall short.

“When federal student loan resources are exhausted, parents and students face tough decisions on how to pay for college,” says Ameriprise Financial private wealth advisor Rocco Carriero. “Most private loans are made directly to students, meaning that it becomes their financial and legal responsibility to repay the loan.”

Experts say taking out private loans to cover tuition should be students’ last resort—but if it’s required, here’s how to do it without bringing on life-time debt.

Know Your Rate and What it Means

Private student loan interest rates are variable and are pegged to an index such as the LIBOR or PRIME index plus a margin. The LIBOR index is the London Interbank Offered Rate and signifies what it costs a lender to borrow money, while the Prime Lending Rate is the interest rate lenders offer to customers with the best credit.

According to FinAid.org, a loan with interest rates based on LIBOR will be less expensive than a loan based on the Prime Lending Rate over the long term because a variable rate loan pegged to the LIBOR index will grow more slowly than a loan pegged to the Prime Lending Rate.

“The best private loan terms have the interest rates of the LIBOR at 2% or PRIME at 0.50% with no fees,” says Orlando Espinosa, former national spokesperson for The Sallie Mae Fund and current vice president of marketing for ScholarshipProz. “These are the standard competitive rates with the Federal Plus loan.They pretty much have to provide students with competitive rates because they want the students to actually take out the loans with them.”

Maintain Good Credit

For students who have established a credit history, the interest rate and fees paid on a private student loan are based on their credit score. If a credit score is less than 650, students are unlikely to be approved and a score increase of 30 to 50 points may be enough to get better terms on a loan, according to FinAid.

The experts point out that if a student has limited or no credit history, their greatest chance at qualifying for a loan with better terms (lower interest rates and fees) is to have a financially- responsible co-signer.

“Applying with a creditworthy co-signer should bring you the best pricing,” says Patrick Kandianis, co-founder of SimpleTuition.

Shop Around for the Lowest Rate

While some financial institutions have relationships with certain schools, it’s important that students do their homework to find lenders with the best options, says Espinosa.

It may be worthwhile to approach a financial institution where the student or the co-signer already has an established relationship, but it’s always a good idea to shop around and compare different lenders.

Espinosa cautions that some websites and brochures may have out-of-date material and that it’s the student’s responsibility to directly contact lenders to get updated information.

“The students actually have to do the leg work for themselves and look and see what’s out there, what’s available and not just rely on information that’s being handed to them,” he says. “It’s their education and they’re definitely going to want to pay a lower rate but they need to definitely do their research.”

Find the Best Private Loan Package

Students should understand that private loans come in various shapes and sizes (fixed rates, variable rates, no origination fees, some with origination fees, some 10 years, some 15 years, some 20 years).

 “In many cases they are currently cheaper or the same in price to federal options,” Kandianis says. “The Federal PLUS loan, for instance, has a 4% origination fee and costs 7.9% annually vs. some private loans with no fees and lower fixed and variable rates.”

Lenders may advertise a lower rate for the in-school and grace period only to have a higher rate when the loan enters repayment, so it’s important that students ask questions to make sure they understand the terms, says Espinosa.

Students should also find out about the lender’s repayment rules, especially when payments are expected.

“Some loans allow for a much lower cost by having repayment start right away and a shorter repayment time,” says Kandianis. “Some allow for deferment which helps with cash flow but might add cost.”

Understanding that the APR on the loan factors in fees, interest rate and time is essential, as it is the one determining factor that can allow for comparison between loans that have different structures, says Kandianis.

“Just because there is a fee, or is not a fee, or a higher rate, all of that gets measured in terms of APR and will come out in the wash,” he says. “Looking at APR and total cost should give a good idea on the costs over time.”

source: foxbusiness.com

Study: Student loans went to people who couldn't repay

WASHINGTON – Risky lending caused private student loan debt to balloon in the past decade, leaving many Americans struggling to pay off loans that they can't afford, a government study says.

Private lenders gave out money without considering whether borrowers would repay, then bundled and resold the loans to investors to avoid losing money when students defaulted, according to the study, which is being released today.

Those practices are closely associated with subprime mortgage lending, which inflated the housing bubble and helped bring about the 2008 financial crisis.

"Subprime-style lending went to college, and now students are paying the price," said Education Secretary Arne Duncan, whose department produced the report with the Consumer Financial Protection Bureau.

Duncan said the government must do more to ensure that people who received private loans enjoy the same protections as those who borrow from the federal government.

Student loans fall into two main categories: Loans directly from the government and those offered by banks and other private financial companies. The report focused on private student loans, which spiked from $5 billion in loans originated in 2001 to more than $20 billion in 2008. After the financial crisis, as lending standards tightened, the market shrank to $6 billion in 2011.

American consumers still owe more than $150 billion in private student loan debt, the study said. Including federal loans, Americans now owe more than $1 trillion in student loan debt, according to the CFPB. It has surpassed credit card debt as the biggest source of unsecured debt for U.S. consumers.

Private student loans are riskier than federal loans, the study said. They often carry variable interest rates, which can cause monthly payments to rise unexpectedly. Federal loans offer fixed interest rates.

In many cases, if a borrower is unable to repay, federal loans can be postponed or reduced. Those options are rare for private loans, the study said.

Students often did not understand the difference between federal and private loans, the study said. That caused many to take out costly student loans when they were eligible for cheaper, safer government loans.

The study highlights a unique feature of student debt: Unlike other credit card balances and most other debt, it is nearly impossible to cancel student debt by filing for bankruptcy. That leaves many borrowers trapped, behind on loans that lenders are unwilling to modify, the study said. There are more than 850,000 private loans in default, worth more than $8.1 billion, it said.

"Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford," said Richard Cordray, director of the Consumer Financial Protection Bureau. The CFPB was created in the wake of the financial crisis to protect people against unfair loans, unexpected fees and other financial threats.

Lending standards for private student loans were loose during the credit bubble of the mid-2000s, the report said. Because private lenders marketed directly to students, bypassing school financial aid officers, schools did not review borrowers' financial needs or enrollment status. As a result, many borrowed far more than they needed to pay for tuition. The loans went to people with increasingly weak credit scores, making repayment less likely, the study said.

The head of a trade group representing for-profit colleges said in a statement that private loans sometimes are necessary for people to complete their degrees.

"These loans provide students access to higher education opportunities that they would otherwise not be able to pursue," said Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities.

The report is based on data from nine lenders on over more than 5 million loans made between 2005 and 2011, as well as data from five nonprofit lenders. It was required under a sweeping overhaul of financial rules passed by Congress in 2010.

It said that lenders have been more careful since the financial crisis reduced the amount of credit available. For example, in 2011, more than 90 percent of private student loans required a co-signer, compared with 67 percent in 2008.

source: USA TODAY

Student Debt Consolidation Loans : Things You Should Know

Student debt consolidation loans can ease the accountability alike as the debts that students have to take on in order to finish their college education are getting more and more expensive and harder to repay. A student who is using multiple cards or multiple loans to meet their needs. These different unpaid debts also charge multiple interest rates which becomes unacceptable for many students.

Using a consolidation loan you will be able to solve this problem of being in debt by consolidating everything to a single source. Student loan debt consolidation loan is a single flat rate of interest through which a student can merge and pay off all your previous debts.


A Student loan consolidation is offered by many lending companies and is intended to improve the overall financial condition of students but with so many student loan consolidation companies, its difficult to decide which one best suits your needs. Following these simple rules and doing a little research, you will be able to find a company that offers a student debt consolidation plan that works for you. Before signing anything, read carefully and understand exactly all the terms and conditions that move with loan consolidation. A good student loan consolidation company would provide you with a step-by-step guide of how to deal with student loan debts, you will be informed and proceed after meeting a counselor that is provided by these companies.


Being a student borrower, you are allowed with lots of options and ways to cope effectively with your debts.