There are several good – and frightening – reasons why President Obama Tuesday announced a new student-debt relief plan that includes capping loan payments at 10% of income.
Students of higher education are now paying a huge price for their time – $100 billion this year.
Two weeks ago, the Federal Reserve Bank of New York reported the latest stats on student loan debt: The amount of loans taken out by students last year hit the $100 billion mark for the first time. What’s more, the total amount of outstanding student debt will reportedly pass $1 trillion for the first time ever this year.
Yet these numbers aren’t nearly as scary as the ones released by the U.S Department of Education last month: 320,000 student borrowers who entered repayment in 2009 defaulted by the end of 2010 – an increase of 80,000 people over 2009, or about 10% of borrowers.
This is deeply concerning, because defaulting on a loan can ruin a grad’s young financial life. It will add to the cost of the loan, affect his or her credit score and make it nearly impossible to secure additional loans to go back to school.
Defaulting also means that the IRS can intercept any tax refunds the student may receive, garnish up to 15% of his disposable income, and even take some federal benefits.
However, the good news is that defaulting is completely avoidable. A few weeks ago, I told you how to reduce college costs before you (or your child) set foot into the freshman dorm. That advice still applies. But for those of you for whom it came a little too late, what you need to do now is make sure you have a smart repayment plan in place.
You’ve had a six-month grace period, but it’s quickly coming to a close. If you haven’t thought about this yet – or if you have kids in college and want to know what’s around the corner – here’s what you need to know to act:
Source: New York Daily News | JEAN CHATZKY