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Student Loan Debt Out of Control – Are There Answers?

student-loan-debt-optionsStudent loan debt in the United States is at an all-time high, skyrocketing to more than $1 trillion, this according to the Federal Reserve. Currently, a student needs approximately $30,000 in loans to finish college. Paying back student loans is hard no matter the career path but there are some careers with tremendous opportunity and lucrative pay while others are harder to secure and do not offer a great starting salary.

In recent years, this type of debt has risen steadily as many graduating students struggle to find work and in many cases, secure jobs that are not degree related. Because the job market is improving at the national level more graduates are finding work but the market is also attracting more banks to get involved in the business of student loans.

The biggest entity in the student loan market is Sallie Mae, which services approximately 39% of these loans. However, the government also contributes to the flow of loan dollars through subsidies to lending companies. According to one study, for the past 20 years every attempt made to overhaul the vast student loan industry by eliminating subsidies to lenders has been met with tremendous resistance from Sallie Mae.

Sallie Mae has a strong foothold in Washington and as stated by the NCLC, for-profit entities involved in government loan programs could cause serious problems. After all, the Federal government relies heavily on private companies such as Sallie Mae to administer loan programs. Therefore, not only it is imperative that for-profit companies do what is best for its investors but it is particularly crucial for the government to conduct severe oversight of private contractors.

At the current rate, outstanding student loan debt is second only to home mortgages in total consumer debt burden for the country. Putting it into perspective, there is an $83 billion slowdown in home buying this year because of student loan debt, which means that more than 410,000 homes will not be sold because of almost six million Americans under the age of 40 who have to spend a minimum of $250 a month to pay off student loan debt.

This debt has been a problem for a long time but at this point, politicians and other people in the United States need to recognize that the entire economy struggles when purchasing power of young adults is compromised.

Eliminating Debt

There are now some state and federal offices discussing high student loan debt as being a problem the US government helped create, as seen in the state of Minnesota. In this state, Democratic US Senator Al Franken is promoting a solid bill he cosponsored this year whereby the interest rate on federally guaranteed student loans would be reduced from 4.6% to 3.86%.

In all, 60 votes in the US Senate were needed to pass this bill but only 56 were attracted. The downside to this bill is that it is financed with a tax increase, which is the primary reason it did not pass. One of the reasons Franken pushed hard on this bill is because at two-year colleges, the average yearly student borrowing is up almost 50% based on hikes in tuition. This reveals there may be other factors involved in the rising student loan debt.

A new policy idea is being floated around by house DFLers, which involves partial loan forgiveness for some graduates in Minnesota. As part of a campus campaign this week, Speaker Paul Thissen pushed the idea, saying it would write down debt by as much as $3,000 annually for graduating students in two categories to include those going to work in “vital fields” and those performing community service for one year through a Minnesota AmeriCorps program.

According to Thissen, this idea for Minnesota students is very similar to one in Kansas that helped to slow down financial drain. If this bill were to pass, it could eliminate an increasing shortage of high-tech workers in certain regions of Minnesota. Although some of the key components of the proposal are not yet worked out, to include industries, locations, and specific students who would quality, Thissen expects to seek approximately $10 million a year.

Obviously, changes are needed at the government level for this growing problem but people who are already in debt because of student loans have a few options as well. The most important are to understand student loans, avoid private loans, borrow only the amount available under the federal student loan program, never take out more than needed for a four-year degree, and complete prerequisites at a community college prior to transferring to a four-year university to help cut costs.

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