Each year, students borrow millions of dollars or get other financial aid from the federal government to help them pay for their their post-high school educations - trade schools, colleges and universities, as well as post-graduate work. After all, very few students and families can afford the soaring costs of higher education without some help.
Unfortunately, it's going to get more difficult for students to get federal aid, many students will soon feel a thump to their budgets and that's not all.
Debt Ceiling Deal No Deal for Students
The debt ceiling deal finally worked out by federal lawmakers in August 2011 strikes blows to federal student financial aid programs.
The Pell Grant program gives up to $5,500 to college students based on their financial need. Usually, they're awarded to low-income students and families. Unlike student loans, students don't have to repay Pell Grant money.
During the debt ceiling debate, there was talk that Pell Grants would be lowered to $4,075. That didn't happen, but another program took a hit.
Loans for Graduate Students
Before the debt ceiling deal, graduate students - students with a college degree who are working on an advanced degree, like a masters or doctorate - with federal subsidized student loans weren't charged interest on their loans until after they graduate. Not so anymore.
Beginning in July 2012, interest will be charged on these loans while grad students are still in school. That could mean thousands of dollars more to repay.
More Hits in the Future?
The debt ceiling deal may have future impacts on student loans. There's concern that the Congressional "super committee" charged with coming up with over $1 trillion in federal budget cuts and savings may lower or eliminate the tax breaks students and parents get for certain college-related expenses.
A Debt Crisis Looms?
While all this is happening, experts warn that the high amount of outstanding student loans coupled with poor job prospects for graduating students may lead to a serious financial crisis. Graduating from college or grad school with thousands of dollars of loan debt and no real prospects of repaying it may mean more defaults, which may mean:
- Legal action by lenders against students for repayment
- Ineligibility for future educational loans
- Garnishment of wages and income tax refunds to repay loans
- Long-lasting damage to credit ratings
- An increase in personal bankruptcies to erase or "discharge"other debts (student loans aren't discharged in bankruptcy, though)
For-Profit Schools Add to the Problem
Over the past several years, for-profit or "career" colleges and universities have grown and expanded at a phenomenal rate. Many students use federal financial aid to pay for their educations at these schools, too. Unfortunately, these schools have drawn criticism for years from students, educators and even the federal government.
Why? The schools, many claim, collect billions in federal and state loan and aid money from students who either don't graduate or can't find jobs after graduating, despite the schools' promises of success and job-placement assistance. For-profit schools have seen a fair share of legal battles, including a recent lawsuit filed by the Justice Department and four states.
Abuses like this may make it much more difficult for students to get loans for these types of schools. It should be noted that students at for-profit schools account for more than half of all student loan defaults.
Manage School-Related Debt
There are a number of things you can do to make sure your college education doesn't put you in line for future financial problems:
- Look for alternatives to federal financial aid, such as 529 accounts and scholarships
- As difficult as it may be, start saving now if you're working your way through college or grad school
- Take advantage of deferments, forbearances or other temporary suspensions of repayment if you're having trouble paying your loans
- Try to renegotiate the repayment terms of your student loans to fit your budget
- Ask your employer about tuition assistance or reimbursement if you're thinking about going back to school
- Take full advantage of your GI Bill benefits if you're a military veteran
- Carefully research the graduation and job-placement rates of any school, especially for-profit schools
Getting through your classes and graduating is hard enough. The idea of a big student loan bill at the end of that long road may add to the stress. Careful planning and a realistic view of your post-school financial condition can help you meet your school and career goals.
Questions for Your Attorney
- Can I sue a for-profit school if I think it misled me about job and career prospects?
- Is there any way to stop a bank from garnishing my wages after I defaulted on my student loans?
- Are my spouse and family responsible for repaying my student loans after I die?