The Root of It All – 5 Reasons Borrowers Struggle to Back Student Loans

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Recently, the Department of Education released a series of quarterly reports and the findings weren’t good. According to NBC news, at the beginning of 2016 more than 30 million people owed approximately $855 billion in direct student loans – a 15% increase from a year ago. Of those 30 million people, 46% are currently not paying on their loans. This excludes those that are still currently enrolled in classes and those in the 6-month post-graduation grace period. 13% of these borrowers have been granted deferment and 14% have received a forbearance due to economic hardship.

The remaining 18% of borrowers are either delinquent or in default. A delinquency occurs the first day after missing a payment and matures into a default after 270 days of missed payments. This equates to $121 billion of loans in default, what Jason Delisle, director of the Federal Education Budget Project at New America, claims is a “slow-moving disaster”.

Why is it so hard for borrowers to pay back their student loans? Having student loan debt can be immense and overwhelming, but let’s break down the root of student loan struggles.

–Low income: According to the Huffington Post, the average young college graduate, between the ages of 21 and 24, makes just under $18/hour, or $36,000 – a 2.5% decrease from 2000.  After living expenses, grocery bills, and other forms of debt are paid, borrowers are often left with little to contribute to their student loan.

–Un(der)employment: According to the 2015 Economic Policy Institute Report, millenials are facing the longest, most severe period of economic weakness in more than seven decades. The unemployment rate for recent college graduates is 7.2%, while the underemployment rate is 14.9% – a 5% increase from 2007. As recent graduates become “idled” by the economy, the challenge to meet the demands of student loans continues to rise.

–Not knowing your federal loan options: Upon graduation, borrowers need to honest about what payment plan will work best for them. Eligibility for payment plans can depend on your total loan balance, the types of loans you took out, and in some cases, how much you earn. Work with your loan servicer, or check out studentloans.gov‘s Repayment Estimator to decide what plan is right for you and your budget.

Inflexible payment terms for private loans: Private loans technically fall under the category of retail credit – which according to US News means that with very few exceptions, lenders are not allowed to offer any programs or alternatives that would substantially alter the terms of the loan. Generally, this means that any form of relief (forbearance, interest-only payments, etc.) can only be offered 6 months to a year in extreme cases. Lenders tend to have far more flexibility to accepted negotiated terms once a loan defaults. Consider utilizing a certified student loan counselor to help negotiate a settlement for your private student loans.

 —Not staying in touch: The biggest mistake a borrower can make in the student loan struggle is pretending the debt does not exist. Stay informed and remain proactive, and you’ll be able to avoid the drastic consequences of ignoring a student loan.

You may also be interested in my article about how to settle a private student loan in default.

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About Andrew Weber, NACCC Certified Student Loan Counselor

Andrew Weber is a NACCC Certified Credit Counselor and a NACCC Certified Student Loan Counselor. He is the only certified student loan Counselor who specializes exclusively on private student loan issues in the US. He's helped hundreds of borrowers drastically reduce their debts.