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John Moore

Student debt is the amount of money owed for a student's education, generally specific to college or graduate school. The debt incurs a student loan that must be repaid with interest.

Types of Loans

Education loans come in three major categories: student loans (e.g., Stafford and Perkins loans), parent loans (e.g., PLUS loans) and private student loans (also called alternative student loans). Federal law sets the maximum interest rates and fees that lenders may charge for federally-guaranteed loans.

Getting out of Student Debt

1. Figure out how much is owed:
   • Students should Call their school's financial aid office and lender to find out their total student debt balance
2. Determine what types of loans were used, how much is owed and who the lenders are
   • The Department of Education decides how much and what types of financial aid students are eligible for. Students should be careful not to mix up the grants with the loans when they are paying back debt.
   • Lenders like Sallie Mae will keep student loans or sell them to another provider. Students should check which loan provider hosts their loan before they start to pay it off.
3. Consider wiping out student loans by serving^[1]
   • The government will forgive part or all of a student loan if the student agrees to invest time in:
     • Volunteering:
       1. Americorps. For one year volunteering for Americorps, students are rewarded with $4,725 to spend on your college debts, and a stipend of up to $7,400. For more information, visit the Americorps website or call them at (800) 942-2677.
       2. Peace Corps. Students volunteering with the Peace Corps automatically have their loans deferred. Some volunteers are eligible to have their loans reduced.
       3. VISTA (Volunteers in Service to America). VISTA, which is all about community development and ending poverty, homelessness, and illiteracy in the United States, will pay off $4,725 of student loans for volunteers who spend 1,700 hours serving the organization.
       4. Military Service. Students who join the Army Reserve or the National Guard after graduation can receive up to $10,000 to pay off loans.
       5. Teaching. Students who teach special ed, teach in a school that services kids from low-income families, or who teach in a designated teacher-shortage area are eligible to have student loans waived completely.
       6. Social Services. Students who are full-time providers of early intervention services for the disabled, employees of an agency that provides services to families of low-income communities, full-time nurses or medical technicians, or full-time law enforcement or corrections officers can have their loan completely absolved.
     • Law School
     • Medical School
     • Occupational or physical therapy education
4. Learn about repayment options
   • Standard Payment. Students who are employed out of college and can afford to make steep monthly payments should go with the standard payment schedule. Under this payment plan loans are paid down in ten years. This is the quickest way to pay off your loans, but it also requires the highest monthly payments.
   • Graduated Payment. This is the payment method for people who get out of college expecting to make a modest but steadily increasing wage. The payment requirements will start off gentle, then increase every couple of years for the next 10 to 30 years.
   • Income-Based Payment. Students in a commission-based or seasonal business in an income-based plan make payments proportional to the amount that is currently being made. These loans generally take fifteen years to pay off.
   • Long-Term Payment. Students pay the least possible amount per month for 10 to 30 years. This payment plan has the worst interest rate.

^[2]

^[3]

Other Tactics

Learn about ways to delay your payment

1. Consolidating multiple loans into one loan to simplifies the repayment process and lowers monthly payments. The downside to consolidation is that students are likely to pay more money in interest over time.
   • • To find out more about loan consolidation, students should contact their lender or turn to the following resources (if appropriate):
       1. Sallie Mae (800) 524-9100
       2. Federal Direct Consolidation Loan Info Center (800) 557-7392
2. Deferment
   • For a fixed amount of time negotiated between a student and a lender, no interest is accrued. Not everyone qualifies for loan deferment.
3. Forbearance
   • Forbearance is a three-month break from a loan repayment.

Learn how to survive default

1. Contact the loan holder and agree to make six on-time $50 payments. At this amount the student becomes eligible to apply for additional federal loans and grants.
2. Make six more on-time payments and the student is out of default.
3. If the student needs additional help with a defaulted loan he or she should contact the financial aid office of their school, the U.S General Services Administration Consumer Information Center, or the Federal Trade Commission's Public Reference Branch.

Student Debt in the United States

Between 2006 and 2007 the average debt of students graduating with loans rose from $18,976 to $20,098, a six percent increase. The increase was roughly the same for both public and private nonprofit four-year colleges. Average debt for the class of 2007 was $18,482 at public colleges and $23,065 at private colleges.^[4]

Resources

1. ↑ FinAid, The Smart Student's Guide to Financial Aid
2. ↑ Student Debt and the Class of 2007, High Debt States
3. ↑ Student Debt and the Class of 2007, Low Debt States
4. ↑ Student Debt and the Class of 2007, Project Student Debt