FAQ: Young graduates face growing student debt, less ways to pay - KSLA News 12 Shreveport, Louisiana News Weather & Sports

FAQ: Young graduates face growing student debt, less ways to pay bills

Student debt is complicated, but it's not unmanageable. (Source: Raycom Media) Student debt is complicated, but it's not unmanageable. (Source: Raycom Media)

(RNN) - Student debt can be debilitating. 

Most obviously, it's a mammoth financial burden on many college graduates, who may be struggling to find well-paying jobs in their field or sought degrees in lesser-paying fields they were passionate about. 

What's often not so obvious, however, is the obtuse legalese and terminology. Whether it's the cryptic definitions of "deferment" or "loan forgiveness" or the hieroglyphic math involved, it can really be a road block for recent graduates who will soon be repaying out of pocket for their shiny, new education. 

So here's a student loan calculator for the math, and below is an FAQ to help navigate the choppy waters of post-grad debt. 

What happens if I don’t pay them?

Foremost, that’s a terrible idea. Don’t do that, barring extreme circumstances.  

But, to answer the question, failure to pay student loans results in delinquency. You’re delinquent the day your payments are late. The real trouble starts if your delinquency lasts 90 days because that’s when it can tank your credit.

After 270 days, you enter default, and the full balance of the loan can become due. If you can’t pay that – and why would you be able to if you stopped paying in the first place – your loan can go to collections. 

How can it ruin my credit?

Defaulting on your loans or entering collections can do pretty severe damage to your credit. Even being delinquent once could cost you points on the all-important credit score.

This can make future loans harder to get, making big purchases down the line (car, house, etc.) very difficult.

The good news is that paying your loans on time can actually help your credit score. Also, your score won’t be punished if you’re in deferment (more on that later). 

Besides collection agencies and tanking my credit, are there other repercussions for defaulting on my loan?

The short list includes wage garnishment, legal ramifications, higher interest rates and no more tax refunds. 

Are there better options if I can’t pay?

Since the above options stink, any other option is an improvement.

There’s no guarantee that deferment or forbearance are options for everyone, but you should look into it before defaulting.

Deferment, an option for federal loans only, is available on a case-by-case basis for those in economic hardship or unemployment. It allows you to stop making payments and no interest accrues. If you’re enrolled in college or in the military, you may also qualify for deferment.

Like deferment, forbearance allows you to stop making payments for a myriad reasons; however, student loan interest will continue to accrue. 

What is student loan forgiveness?

This is a question on a lot of people’s minds because “forgiveness” sounds really appealing.

The truth is that student loan forgiveness is even more selective than deferment and forbearance. There’s a long chart with a litany of situations to explain who qualifies and who doesn’t.

It’s best you thoroughly read that over before you get your hopes up, but, if you fall into one of the categories, you may be eligible to have part of all of your loan forgiven, i.e., you don’t have to pay it.

Can I declare bankruptcies?

Despite being often described as impossible, student loans can be discharged into bankruptcy. It’s not an easy road, though.

To put it in simple terms, you have to be able to prove dire financial hardship.

The courts use what’s called a Brunner Test. You must meet three criteria to be considered for bankruptcy:

  • If you are forced to repay the loan, you could not be able to maintain a minimal standard of living.
  • There is evidence that this hardship will continue for a significant portion of the loan repayment period.
  • You made good-faith efforts to repay the loan before filing for bankruptcy.

What are the differences between private and federal loans?

The conventional wisdom is to start with federal student loans before taking out any private ones because the latter do not always have fixed interest rates and usually do not have deferment options.

There’s a long list of differences, but the most important are the two listed above. Private student loans can be an effective option for those who need a little more cash, but they can also bring about harsh financial burden that is much less forgiving. 

How many people aren’t paying their student loans?

According to the Wall Street Journal and the Education Department, more than 40 percent of Americans who borrowed federal student loans are behind on or not making payments.

In the same data, 3 million Americans were at least a month behind, and another 3.6 million were in default. 

How much does the average American student owe after graduation?

The average 2016 graduate who did borrow student loans carries about $37,172 debt, according to education expert Mark Kantrowitz. 

The standard repayment schedule for student loans is 10 years, but, according to research, the average borrower takes 21 years to repay the debt. Assuming borrowers owe the aforementioned $37,172, they could face monthly payments of more than $300. 

What's the interest rate?

For all undergraduates, whether they qualify for financial need or not, will pay 3.76 percent interest for the 2015-2016 school year. Graduate and professional students will pay one of two higher rates.

Graduate loans are unsubsidized, meaning the interest rate is higher. Students seeking a masters or other professional programs will pay 5.31 percent interest. Those parents or graduate students who take out a Direct PLUS Loan, which is meant for parents of undergrads or graduate students who need a little more help, will pay 6.31 percent interest. 

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