New Solution to Stop High Student Loan Debt

Cliché: Take out a loan.    
POCS Reality: Federal student loans are a form of financial aid to help pay for college.


The student loan crisis is visible on Wall Street and Main Street as the Occupy Wall Street movement spreads from city to city.

The Chronicle of Higher Education October 23, 2011 Commentary The U.S. Should Adopt Income-Based Loans Now states the problem:

Decades of greed, inattention, and failed policy have created a growing class of young men and women with few prospects of landing jobs good enough to bear the weight of their crushing college loans.

and a possible solution:

Under an income-contingent loan system, like those in Australia and Britain, students pay a fixed percentage of their income toward their loans. Payments are automatically deducted from their paychecks by the IRS, just like income-tax withholding. Self-employed workers pay in quarterly installments, just as they do with their taxes. If borrowers earn a lot, their payments rise accordingly, and their loans are retired quickly. If their income falls below a certain level—say, the poverty line—they pay nothing. After an extended time period of 20 or 30 years, any remaining debt is forgiven.

In other words, nobody ever defaults on a federal student loan again.

POCSmom’s College Prep DIY Insight: Past bad decisions led to the present poor economy. The future depends on how today’s problems are solved.

Right now, there is an Income-Based Repayment (IBR) Plan for federal Stafford student loans and student Grad PLUS not in default that caps monthly payment at an amount intended to be affordable based on income, family size, and state of residence. Use the IBR calculator to determine if your monthly payment would be lower than under the 10-year standard repayment plan. Note that borrowers may end up paying more interest because the longer the repayment period, usually the more interest is paid. However, after 25 years of repayment under IBR and meeting certain other requirements, any remaining loan balance will be canceled.

Not all education loans are eligible for IBR such as federal parent PLUS loans and non-governmental private loans.

*POCSmom’s DIY Insight: To Go College or Not To Go To College

Cliché: School of thought.    
POCS Reality: Although it pays to go to college, it pays more to go to the best fit and affordable school.

To go to college or not to go to college? How would Hamlet answer that question?

The case for and against college is revealed in a series of 10 interesting charts:

  • 5 charts show the value of college is growing because of the close relationship between education and employment.
  • 3 charts show the value of college growing but slowing.
  • 2 charts show the value of college is falling because of lower wages and higher student loan debt.

POCSmom’s DIY Insight: The value of education can be measured in numbers (financially) and in knowledge (insight).  Employers know this, studies show this. To maximize the financial benefit of a college degree, college-bound students should consider the cost of borrowing and repayment amounts prior to taking out education loans.

As for Hamlet, to go or not to go to college? Before he died, he attended school in Wittenberg.

*POCS: Parent Of a College Student


*POCSmom’s DIY Insight: College Lists and Student Loans

Cliché: Default on.    
POCS Reality: Colleges and the government keep track of student loan defaults.      


Horrible. Disturbing. Frightening. I’m talking about the growing student loan default rate. When forming a college list think ahead so these words don’t apply to your situation.

The Department of Education’s latest figures show a 2003 low default rate of 4.5% rose to a 2009 8.8%: 

Although the late 80’s and 90’s had double digit default rates, they fell steadily until 2003. Now they’re at a 12 year high:

and bankruptcy is growing among college grads:

POCSmom’s DIY Insight: Choose colleges that are affordable for your family now and after graduation. Add up available savings but don’t raid retirement funds. Project potential income and length of time to secure employment. College is supposed to help not hinder a student’s financial future.

If you need to borrow, choose a federal education loan not a private loan or home equity loan. Federal student and parent loans are regulated by the federal government, have special terms and interest rates, unique loan forgiveness programs, and do not require collateral.

Before borrowing, calculate monthly repayment amounts including the amount borrowed (principal) and borrowing costs (fees and interest). Make sure you can afford any loans.

Note: student loans are treated differently from other consumer loans under bankruptcy laws and it is much harder to obtain a discharge.

*POCS: Parent Of a College Student