An article in USA Today [http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1?loc=interstitialskip] reports that student debt will surpass the nominal mark of one trillion dollars. Also, last year was the first year that new student loans crossed one hundred billion. This is a lot of money, but the context is more important than round number dollar figures. Due to the housing bubble bursting, consumers spend less and more pay down debt, especially mortgage and credit card debt. Several months ago, student debt exceeded credit card debt, which means the composition of America’s debts is changing. Meanwhile, outstanding student debt has doubled in the last five years. This is more important than the actual dollar figures.
In part, due to government subsidies (now direct lending) and the fact that government rendered student debt almost completely non-dischargeable in 1998 and 2005, the aggregate debt amounts are increasing rapidly even though mortgage debt and credit card debt are dropping. Making things worse, colleges and universities are increasing tuition and fees well over the rate of inflation. Viewing these conditions, commentators are claiming student loan debt is the next bubble. Already, due to continued stagnation in the U.S., default rates are increasing, according to the article.
In these circumstances, there are a few things Las Vegas student loan debtors can do to prevent themselves from being caught in the maelstrom.
(1) Wait for the bubble to pop. If higher education is important to you, it may be worth your while to wait and see if the bubble pops in the next few years.
(2) Ensure you are going to college to learn things you cannot learn on your own. Many college degrees provide little labor market value beyond prestige. Plenty of trade careers are in greater demand than those requiring college educations.
(3) Save before going to college. Take time off between college and high school and make money if you can find a job.
(4) Prioritize cheaper schools over prestigious ones. The draw of a prestigious school is that a diploma from it informs employers that you’re intelligent. The problem is they charge much for their degrees. A scholarship from a less prestigious school usually implies that you’re smarter than your classmates, which may provide you with similarly good opportunities.
(5) Do not attend for-profit universities. Ever. “Proprietary institutions” are often more expensive and no more effective than traditional non-profit institutions. True, the latter are often overpriced as well, but they are not as bad as for-profit schools.
(6) If you choose to borrow, use federal loans. True, they’re just as non-dischargeable as private loans, but the interest rates are lower, some are subsidized, and almost all of them allow borrowers to choose Income-Based Repayment (IBR) or Income-Contingent Repayment (ICR) plans that cap monthly payments based on income.
(7) Do not use private loans. Ever. The interest rates and repayment options are abysmal.
(8) Do not have relatives co-sign your loans. Ever. Many loans, such as federal Parent PLUS loans are not eligible for IBR or ICR. Worse, there are horror stories of students who are injured, become ill, or die, leaving the co-signatories to pay the remainder of the loan if they didn’t benefit from the education. If you are asked to co-sign a student loan, read to see if you can be released from the loan after a certain time period, e.g. ten years, if payments are regularly made. Otherwise, do not co-sign.
(9) Cut costs in as many other ways as possible. Work during school, live with friends or relatives, learn to cook your own meals, and curb your discretionary spending. You may need to consider forgoing studying abroad if that’s one of your goals.
(10) Complete your studies as quickly as possible; do not go if you are afraid you will drop out. Consider going to a cheaper two-year school and seeing if your credits transfer to more expensive four-year institutions.
(11) Do not “double-down” and attend graduate or professional programs that are not in high demand simply because you cannot find work. Use the Bureau of Labor Statistics’ Occupational Outlook Handbook [http://www.bls.gov/oco/] to determine if there will be job openings in your field.
For those who are having trouble repaying student loans, consult with a Las Vegas bankruptcy attorney before defaulting. Bankruptcy may be able to help you free up your income for other purposes.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation by calling 702-880-5554.