What to do to Avoid Risks of Rising Student Loan Debt

Recently, the student loan debt exceeded $1 trillion for the first time ever and as a result, Americans have been struggling more than ever. Moreover, based on a report by Project on Student Debt, the average student loan debt in Florida is increasing faster compared to any other place in the country.

However, there are still options you can choose from to prevent yourself from being drowned with student loan. According to Karen Carlson, director of education for InCharge Debt Solutions, which is a consumer credit counseling service based in Orlando, to avoid an unpleasant state, you can look for some advice at the start.

In addition, Carlson said that taking on a large amount of student loan debt might lead to a financial disaster, especially if you already have previous debts, get laid off, encounter health problems, or other unprecedented circumstances.

One of the best ways to avoid being trapped in student loan debt is to have a savings plan even prior to the initial college bill. Several people utilized tax-exempt educational-savings accounts, but they are less favored these days because of poor returns. In turn, others rely on Roth IRAs, which let you take out principal tax-free if it’s going to finance educational expenses.

According to Dennis Nolte, financial planner at Winter Park and senior vice president at Capital Guardian Wealth Management, the public must have a comprehensive strategy to handling college expenses, in order to lessen their dependence on student loans. For instance, they must compare different schools or do a cost-benefit analysis of courses based on their income potential in the future.

Also, parents must encourage their children to take part in the financial planning process as early as possible, so that it will be instilled in their minds that they should work and save money for their college education, and also set definite goals to achieve later on.

Judge Fails the U.S. Government’s Student Aid Loan Standard

Just a few days ago, the Education Department announced that for-profit students who are loaning are having extreme difficulties in paying back their federal loans. And a federal judge has given a reason as to why that is so: he says that the measure of prepayments is of failing standard.

United States District Judge Mr. Rudolph Contreras based in Washington believes that the minimum loan standard of the government in their repayments of 35 percent is subjective and illogical.The statement of the judge was given as a reply to a lawsuit of national association of for-profit colleges which has a member of 47 schools across Minnesota; the association is gravely against the “gainful employment” test.

This three-pronged test’s main purpose is to make certain that for-profit college students would be able to get work which the salary is enough to pay off the college loan they have.The government is now threatening to take away the loans from the for-profit college if they fail to comply with the guidelines. A billion dollars is on the line for these schools every year, this money includes most of the income of private companies and are operating for these for-profit colleges.

The ruling of Judge Contreras highlighted two elements of the test that was the standard of measuring the loan payments of the applicants in relation to their total and subsidiary income. According to the law, individuals should not pay more than 12 percent of the total accumulated earnings or an amount above their 30 percent discretionary income. But both of these were connected to the repayment test and Judge Contreras felt it was only right to cast them off.

This loan standard was brought up for the reason that for-profit colleges are more expensive than public colleges and they have higher student loan default rates than other colleges. Association of Private Sector Colleges and Universities better known as the APSCU has claimed victory over their case. According to their president Steve Gunderson, the only alternate action acceptable for these colleges is to have a single definition for their educational instruction.

Student Loan and Highway Jobs Bill Approved by The Congress

Last Friday, the Congress approved the bill that will save 2.8 million jobs on construction and transportation, and also preventing an increase in the interest rate of loans for college students.

The bill allows more than $100 billion to be financed on highway, mass transit and other transportation projects for the next couple of years.

Also last Friday, a one-week temporary measure was signed by President Barack Obama, allowing highway and loan programs to carry on until the legislation arrives at his office.

As stated in the bill, the subsidized Stafford loans with interest rates of 3.4 percent will persist for one more year. If the order was not approved, interest rates would have increased twice as much to 6.8 percent for 7.4 million college students anticipated to apply for the loans for the next year, which will add $1,000 to the cost of every loan.

Moreover, the bill strengthens federal transportation projects and provides states more flexibility in terms of spending money from Washington. It also includes a range of safety initiatives intended for improving bus safety.

According to Jay Carney, the spokesperson of the White House, the Obama administration was happy that the Congress took actions before the families suffer from their inaction. Carney also said that Obama will pursue for approval of his last year’s proposals that will offer more jobs to the public, to employ teachers, police officers and firefighters.

In addition, to able to increase other revenue, the government will begin to charge the subsidized Stafford loans with interest rates in not more than six years after the start of studies of undergraduates. As of now, there are no interest rates charged until after they graduate.

The bill further extends the federal flood insurance programs that defend 5.6 million households and businesses. It also reallocates 80 percent of the penalties from the Clean Water Act to the 2010 Deepwater Horizon oil rig explosion that affected five Gulf beaches and waters.

House and Senate Nearing an Agreement on Student Loan Debt

According to the advisers of President Barack Obama and the Congress, both parties are heading toward an agreement on how to pay the measure’s $6 billion price tag, which is the cause of the argument.

The objective is to move the legislation forward through Congress in the subsequent week so that the existing 3.4 percent interest rate on Stafford loans can be sustained for an additional year. While a 2007 regulation decreased the interest rates on the loans, it was required to increase to 6.8 percent this July 1 in a cost-saving strategy.

In addition, the two parties are closing in on a deal to fix federal transportation programs, said to the House and Senate advisers from the two parties. Discussions are anticipated to go on during the weekend, with votes projected next week on either a transportation bill or an expansion of existing programs.

President Barack Obama said during his weekly radio and Internet address last Saturday that they only have seven days left before thousands of American employees walk out of their jobs because a transportation bill has not yet been passed by the Congress. Moreover, they only have eight days left before approximately seven and one half million students witness their loan rates increase twice as much because Congress has not done something to end it.

Based on data from the Education Department, 7.4 million students are anticipated to receive new Stafford loans in the current year starting July 1, with each having an average debt of $4,226. Increasing the interest rates to twice as much would add more or less $1,000 to average loan costs, which are paid off by students for 10 years or longer.

In the previous month, the Federal Reserve Bank of New York said that student loan debt increased this 2012 to a total of $904 billion, although other types of loans are going down.

Rise in Student Loan Delinquencies Pushes Colleges to Act

College education is a privilege only a few can obtain, and for people like Mercadi Crawford who is only raised by a single parent, getting the money to go to a university would require student loaning. Ms. Crawford is the only person in her family who graduated from high school, and is also the only one in her family to go to college.

She admits she had no idea about the complications of student loaning when she first applied to go to the Texas Southern University. But if there was one thing she did know, it is that she would need to get a loan in order to afford her tuition in college.

But unlike other students like her, she first sought to understand the terms and conditions she would be subjected to when she applies for student loaning. She applied for the school’s financial literacy lessons and she kept her loans low at $10,000.

She says that knowing the money would come with a price, she tried not to borrow much more than she needed. Texas State University is one of the few colleges that offer this kind of program to educate students about the risks and consequences of student loaning.

Some of the topics that are included in the curriculum are Budgeting and Building Credit as a College Student and Managing Your Student Loan. Rice University offers online courses in budgeting, financial planning and student loan payment.

There are also courses that teach freshmen college students how to deal with bad credit and some schools are even hiring personnel to aid students in speeding up their loan payments.

Student loan debt has succeeded the amount of debt people have in their credit cards. In fact, two thirds of seniors in universities have left their colleges with a debt of $25,250 this is five percent more than 2009 according to Project Student Debt.

The unemployment rate for that year has also increased by 9.1 percent, higher than it ever was. DelisaFalks, the executive director of scholarships and financial aids in Texas A and M University says that students ought to be taught how to loan wisely.

In their program, the students are required to fill up an online calculator that estimates their monthly payments for the future.

These safety precautions that colleges are taking are very much necessary to save the nation and its citizens from slipping further into the havoc of debt.