It is said that taxes and death are certainties of life. Well, now student loan debt can be added to the list. The average student is under roughly $21,000 in debt by the time he graduates, and it is becoming increasing more difficult to pay that back. This is a problem unique to this generation; no other generation has had to face similar circumstances. It is for these students that the government and credit industry have joined together to develop special loans.
These student loans are normally the most economical loans available. They only increase with inflation, which is maintained within 2 to 3 percent, if the currency is stable. Even if there is a sharp increase in inflation, student loans cannot go above a predetermined level. It is understood that these loans will begin to be paid back after the study is completed. Once the student enters the workforce, and the salary has attained a specified level, a certain percent (usually 10%) of the money above this level will go towards paying back the loan.
Government Role
The government realizes that loan defaults are high in the country, so they have come up with manageable methods of repayment programs and thus eliminating the default risk. Billions of dollars have been delegated for this by the Obama government.
Parents or students struggling to pay one or more federal student loans will get some help with the federal student loan consolidation program. This allows the debtor to consolidate all the loans into one that carries a lower interest rate and requires only one easy payment per month. This does not include any private loans; it only applies to federal student loans.
Government Programs
The government has put together some special programs to help relieve the burden of debt that students today experience. While not all programs are for everyone, one is sure to find something that will suit them.
The government has taken steps to lower the federal loan repayment conditions for military personnel. Personnel serving in the National Guard and Ready Reserves will be alleviated of the financial burden of having to pay subsidized federal student loans while they are in active duty. Additionally, the federal government will pay the interest on their student loans while they are on active duty. The government will go a step further and even ask schools to relax fees and fines for withdrawals due to personnel returning to active duty.
The College Cost Reduction and Access Act is a program created to cancel educational debt for workers in the public service. Students looking to take advantage of this loan forgiveness program have to agree to work in a pre-determined public services area for the full repayment loan period. To be eligible, the students have to first make 120 consecutive payments of their loan before they can apply for this reduction program.
Another program announced by the U.S. Secretary of Education Arne Duncan in 2009 was created to ease the student loan burden for graduates who have loans of more than $25,000. The Income-Based Repayment (IBR) plan is aimed at helping students to reduce existing and new monthly loan payments. It puts a cap on the minimum monthly payment at an amount that is based on income and family size. The drawback is that one may end up paying more interest. The faster the loan is paid, the smaller the interest amount. By extending the loan to decrease the payment amount, the repayment period is longer, so the total interest over the loan life increases.
Government Grants
Of course, one of the best ways to avoid student loan debt is not to take a loan in the first place. Needless to say, a loan needs to be paid back with or without relief. The other option is to apply for a free government grant. A grant requires certain obligations to be fulfilled on the part of the person receiving the grant. A scholarship grant does not have to be paid back, but it does require that the student maintain certain minimum grades. As long as progress reports of academic excellence are submitted, the grant can be availed. This money is not taxable and interest free. Grants do not even need a credit history report. The only conditions that have to be met are that the applicant is over the age of eighteen years, a taxpayer, and citizen of the US.
