[/caption]Carol Forsloff --A former financial consultant , Larry Dow, retired and working part-time as a census taker, maintains the next big bubble in the economy will be student loan debt, as young people struggle to pay off loans while trying to secure work. To help ease student debt President Obama announced new student-loan debt rules in order to make college more affordable, even as future college students compete for college admissions while seeking scholarships and loans, as the potential for that new “bubble” looms.
A recent press release discusses a group of students in Georgia, as well as others across the country, who face difficult decisions about their futures. They worry whether the pursuit of higher education is worth the cost. The rising cost of college tuition coupled with a troubled economy and tight job market has brought many young people to wonder whether getting that sheepskin is really a meaningful goal after all.
Obama has announced a new pay-as-you earn program. The program modifies the income-based repayment which could help current college students. This is how the new program works. Student-loan repayments can be capped at 10 percent of the student borrower’s discretionary income. After 20 years of repayment , the remaining debts are forgiven. The program also will allow the student borrowers to consolidate their Department of Education loans with private-sector loans under the Federal Family Education Loan Program into one monthly payment. If they do so, their interest rates can be lowered by 0.5 percent.
The negative about the new rules is that it focuses on current students who received loans in 2008 or later and who will take out more loans in 2012. Furthermore students have only six months of the year to take advantage of the program. All of this is insufficient, according to the Education Finance Council (EFC) as the organization worries about those in debt now, many working part-time and unable to pay back the loan debt as originally planned.
EFC has said, "By focusing only on a limited group of students, the [new program] does little for borrowers struggling to repay student loans in today's distressed job market." What makes things even worse is that student loans are considerable non-dischargeable in a bankruptcy unless a separate petition is made during the bankruptcy process and the individual can prove the loans present an “undue hardship,” which lawyers maintain is extremely difficult. That’s because it means proving a minimum standard of living can’t be maintained without the discharge of the debt. It also means proving to the court that one’s situation is likely not to change during the repayment period, which ordinarily means giving evidence of no potential for additional work or earning power during that time.
In order to avoid mountains of debt, and a potential crisis, bright students continue to try for scholarships. These have become fewer and more competitive with the downturn of the economy. Some of these are contests online such as www.wyzant.com where young people vie for an award based upon essays they write and their response vote. For folks like Kim Czerniejewski of Orlando, Florida it’s a way for her daughter, Carissa, with superior academic credentials to win a scholarship with what the family hopes is a winning essay.
But while Carissa and her mother look to scholarships, many young people already out of college face troubling financial decisions that can impact the economy as a whole. It is the “bubble” discussed by Dow.
In 2010 the Wall Street Journal examined the problem, interviewing Mark Kantrowitz, publisher of FinAid.com and FastWeb.com. Kantrowitz said at the time outstanding student loans, both federal and private, total some $829.785, higher than U.S. credit card debt. He further underlined the seriousness of the problem as this: “The growth in education debt outstanding is like cooking a lobster. The increase in total student debt slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”
