Student loan debt affects all as it rises
Student loan debt has effects on not only those who borrow, but also the state of the economy. Discover helpful resources for managing debt.
Student loan debt, now $1 trillion, has surpassed the national credit card debt in the United States. With the economy still struggling to recover from the recession, some interest groups are worried about the implications of high levels of student loan default.
With so many carrying large student loan debt (an average of $25,000), this has had an effect on all parts of the economy, especially the housing market. One of the most important parts of that market is the first-time home buyer. When a generation of young people has a large amount of student loan debt, they are unable to meet the affordability guidelines for a home loan. In many cases, this will delay the purchase of a home for quite a significant time depending on their amount of debt.
With the creation of the Consumer Financial Protection Bureau (CPFB), a student loan ombudsman is now available to assist consumers with student loan issues. The agency has just started taking complaints and questions. Consequently, they are getting a picture of the major issues.
Student loan default acceleration has been seen on both federal and private loans. Defaults on private student loans are more troublesome because they don’t have the protections of federal student loans. Federal student loans have options to make them more affordable to pay back. One option is the income-based repayment option which cap payments based on income and family size, for those who qualify.
One of the most popular issues the CPFB sees is confusion about federal and private student loans terms. Many don’t realize the difference between variable (which many private student loans have) and fixed interest rates. Or there is a lack of understanding that private student loans don’t have the many options of repayment that federal student loans offer.
To assist consumers the CFPB and the U.S. Department of Education have a website that offers a financial aid shopping sheet. This document will bring information about student loan debt into a clear, easy-to-compare format. The CFPB also has a tool called the Student Debt Repayment Assistant. This tool is for both federal and private student loans.
The agency’s student loan ombudsman can help people by clarifying what types of loans they have and what options are available to them. For example, even though private student loans don’t have repayment options similar to federal student loans, there may be ways to negotiate with lenders.
The key is not to avoid the student loans, but to attack them head on – they will not go away.
For more information on the Consumer Financial Protection Bureau and services available to consumer, visit its website.