Student Loan
The average U.S. student loan debt for a college graduate is well over $25,000. A significant number of parents that have college bound students will likely take out loans year after year until they realize that monthly payments are no longer affordable (Not to mention the loan debt that parents themselves may be still be paying for their own college education). Inevitably, life style and cash flow must be sacrificed as financial security becomes a distant reality for some.

According to finaid.org, the total student loan debt outstanding exceeded total credit card debt outstanding for the first time in June 2010. The seasonally adjusted figure for revolving credit in the Federal Reserve's G.19 report (current report, historical data) was $826.5 billion in June 2010. (Credit card debt represents as much as 98% of revolving credit.) Revolving credit started declining in September 2008 when it reached a peak of $975.7 billion. The decrease is probably due a combination of higher minimum payments on credit cards, which were increased to 4% from 2%, lower credit card limits and tighter credit underwriting. Student loan debt, on the other hand, has been growing steadily because need-based grants have not been keeping pace with increases in college costs.

Collegiate Financial is predicting that the student loan debt crisis will be the next financial meltdown in upcoming years in the United States. Most students view college loans as ‘good debt’ because they’re hedging it against future earnings. But what happens when you switch careers, get laid off, or work an underpaying job? Do students really want to spend the next 20 years paying off a degree in XYZ that ends up costing more in interest than they can imagine?

One thing to note is that student loan debt is different from credit-card and housing mortgage debt. Student loans can’t be washed away when you file for bankruptcy. Ditching a student loan is virtually impossible, especially once a collection agency gets involved. Although lenders may trim payments, getting fees or principals waived seldom happens.

The only way to come out on top and not cost oneself a fortune in interest and penalties over the years is to never miss payments on student loans and, when possible, pay considerably more than the minimums. This can be hard to do at a time when jobs are scarce and higher education is wildly expensive.

At the root of the problem are big banks which have lobbied Congress successfully to remove bankruptcy protection on both federal and private loans. What does that mean? For starters, lenders can charge steep penalties on late and missed payments with the reassurance that they’ll eventually get their money back, even if the borrower files for bankruptcy. The lenders can also be more amenable to deferment and forbearance options for students who can’t make payments immediately upon graduation.

This makes the lenders look like good guys who offer extended grace periods but the reality is quite the opposite. Deferring your loans is perhaps the worst thing a borrower can do for their future. All the interest gets tacked on to the back of the loan most likely with added penalties and fees. Deferring a private loan is like paying the minimum on a maxed out credit card: ultimately the lender wins. Hopefully President Obama can do something sooner than later about this system which cripples young workers and saddles them with debt.

Our services have helped families prevent this approach to funding a college education by applying the Tax Code & the Higher Education Reauthorization Act along with Sound & Ethical Planning Principles. Our mission is to allow parents to comfortably get their children through college without compromising lifestyle, short & long-term financial planning goals & retirement planning while relieving the overwhelming burden of the administrative processes from parents.