Americans have been paying down mortgage debt, home-equity
loans, credit card debt and auto loans over the past several years.
But student-loan borrowing is up significantly, reports the Federal
Reserve Bank of New York. And, says Moody's Analytics, delinquency
rates on student loans haven't improved. "The long-run outlook for
student borrowers remains worrisome," concludes Moody's.
That doesn't surprise me. We at Kiplinger get a steady stream of
e-mails on the subject, like this one from Josh: "I am a current
college student, and when I graduate I expect that my total debt
will be somewhere around $100,000. What solutions do I have for
paying this off?"
Others, like Desmond, are at wit's end: "When it comes time to
pay my lender, I just can't give them what they want. I'm so
desperate to get this loan off my shoulders, I scavenge change to
try to win $50,000 on a $1 scratch-off. I could really use some
Desmond, save the buck. And don't buy into a scheme like this
one, from Sophie: "I have been told that the best path [to paying
off my undergraduate loans] is to go to medical school and go into
a high-paying medical career. But I feel that going deeper into
debt by paying for med school isn't a good idea. Then there's the
fact that I just don't want to be a doctor." Sophie, go with your
You may be tempted when the bills come due -- as they will this
fall for members of the class of 2011 who took out federal student
loans -- to ignore them. Don't. If you don't pay up, your paycheck
could be garnished, your tax refund seized and your credit rating
The Dark Side of Student Debt
There's no magic wand that will make your loans go away. But
there are some things you can do to lighten the burden:
Work for an organization that will help pay off your
-- for example, the
. Teaching in a low-income school may also qualify you for loan
forgiveness, and some occupations forgive loans as a recruiting
tool. (For more information, call the federal financial-aid hotline
at 800-433-3243, or go to the Department of Education's student-aid
. For a list of loan-forgiveness programs, go to
In addition, police officers, public defenders, public-school
teachers and others who work full-time in the public sector qualify
for cancellation of any remaining debt after 120 payments made on
or after October 1, 2007.
Apply for leniency.
If you owe federal Stafford loans, you're entitled to defer
repayment for up to three years if you are unemployed, experience
economic hardship or go to grad school (see
Digging Out of Student Debt
).You could also ask your lender for forbearance; with a federal
loan, you may suspend payments for up to three 12-month
Federal loans also give you the flexibility to lower your
payments in the first few years or extend your repayment term -- or
you may qualify for an income-based repayment plan, which links
your payments to your income (see the calculator at
). If you have any questions about how to manage your federal
student loans, contact the Federal Student Aid Ombudsman at
If you have private loans
, you're not eligible for federal deferral or forgiveness programs.
But if your loans are through Sallie Mae, the giant student-loan
company, and you're struggling to repay them, call the company's
Office of the Customer Advocate, at 888-545-4199, to plead your
case. Or send an e-mail to firstname.lastname@example.org.
Don't know who holds your loans?
Try the Department of Education's
Loan Data System
, a central clearinghouse for information about all federal student
loans. Unfortunately, there's no equivalent database for private
loan information. Sallie Mae advises borrowers either to check
their loan documents or to get a free credit report at
to find out who their lender is.
I can't stress strongly enough, however, that the best way out
of the student-debt trap is to sidestep it altogether. More on that
in my next column.
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