Student Loan Debt Increasing, But Interest Rates Steady

Students are safe from an interest rate hike for federal student loans for another year. Congress will have to reconsider the possible interest hike again next year by the July first deadline but current rates will remain at 3.4 percent for subsidized Stafford loans.

The previous rate for subsidized Stafford loans was 6.8 percent, but when Democrats took over the house in 2007 the lower rates were phased in. In April, President Obama brought national attention to the issue of student loan interest rates and Presidential-hopeful Mitt Romney has also stated he is in favor of lower rates.

Some important changes have been made to student loans, however. Graduate students are no longer eligible to receive subsidized loans. The Budget Control Act was signed into law on Aug. 2, 2011 causing graduate and professional students to become ineligible for federal subsidized loans. These students can still receive unsubsidized loans. Additionally, changes have been made concerning loan eligibility. When determining the aid given to an individual, an expected family contribution will also be determined. The expected contribution in families making $32,000 or less a year used to be $0. Now, however, families have to be making as little as $23,000 to have a zeroed-out expected family contribution.

For families in Idaho this can present a problem. Poverty in Idaho is on the rise, seeing an increase of 1.4 percent between 2009 and 2010, according to the U.S. Census Bureau. The median household income for families in Idaho has also seen a decline in 2010.

Nationally, student loan default in on the rise. The number of federal borrowers in default has hit 5 million, according to In order for a loan to be considered defaulted, no payment has been for 270 days or more. Additionally 850,000 private loans are also in default. The Education Department has started hiring private debt collection agencies to handle the defaulted loans.

Unlike other loans, federal student loans cannot be wiped out through bankruptcy. In 1977 Congress banned bankruptcy as a means of clearing student debt.

Although federal student loans can provide prospective students with a means for receiving higher education, they need to be given serious consideration. A common mistake students make is borrowing too much. With years before graduation and loan payments, it can be difficult to consider borrowing the bare minimum, but the money is not free. According to, 10 percent of graduates from four-year universities are saddled with monthly loan payments exceeding 25 percent of their income. For example, if the individual is making an average starting salary of $41,701 they face a monthly payment of $869. It’s no wonder student loans are the fastest growing category of household debt, while other forms such as mortgage, credit and home equity debt have all declined.

To stay on top of student loan debt there are Web sites that offer help. which launched in August, is similar to It will determine how much needs to be paid each month, how much is owed to various lenders and will automatically notify debt holders of changes to loans including qualification for federal consolidation.

The Boise State financial aid office also offers tools and resources for managing debt such as the net price calculator. Students can input information such as household size and income to determine roughly how much it will cost to attend school.

Finally, for the truly desperate soon-to-be college grads horrified by the debt racked up and quaking at the thought of paying it back, Niagara Fall, NY is offering a trade. College grads can receive up to $3,500 for two years of student loan payments in exchange for relocation to a specific neighborhood just minutes from the falls. The way the city sees it, graduates need to pay off student loans, and the city is hoping to lure young professionals in a potential win-win for both sides.


About defaultprevention

Default Prevention Specialist since 1998.
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