What do college tuition, student loans and the unemployment rate have in common? They’re all sky high.
As the nation faced a 9.1% unemployment rate, two-thirds of college seniors in 2010 graduated with student loan debt averaging $25,250, according to an Institute for College Access & Success report.
But instead of pushing off paying the loans, students are pulling up their sleeves and attempting to knock out as much debt as possible.
According to a report released in 2011 by Auriemma Consulting Group, Inc., recent graduates are making repaying their college loans a higher priority. ACG stated that in 2011, 29% of consumers had enrolled in student loan and school tuition in recurring payment. To compare, only 3% of consumers were enrolled in recurring payment in 2009, according to a press release.
Scott Strumello, a researcher from ACG, attributes this increase to a changed mentality surrounding student loans.
“We do believe that the mindset of many students is that student loan debts are not something that can simply be ignored — which was very much the mindset for many Baby Boomers — and many students today also realize that their newly-established credit records will be impacted for years to come based on how well — or how poorly — they manage repayment of their student loans,” Strumello said in an email.
Along with concerns for their future financial solvency, students consider education costs a different sort of burden from their parents. According to an Institute for College Access & Success report, students believe a college education is less affordable, but more important than their parent’s generation did.
Strumello also points out that the college student’s proactive borrowing trend coincides with decreased funding from the federal government for secondary education. In this way, students can sign larger tuition checks only after they have more aggressively searched for financial assistance seeking help from banks and the privately operated Sallie Mae.
“Most, but not all, banks will facilitate these loans, but a majority of these loans will be serviced by what was essentially a government-sponsored private enterprise known as Sallie Mae until 2004,” Strumello said.
This increase in borrowing and recurring payments, however positive or necessary, has some professionals concerned.
The Professional Risk Managers’ International Association reported that 67.4% of U.S. bank risk professionals feel the level of student loan delinquencies is likely to rise in the next six months.
This prediction seems ominous and inevitable when compared to actual default data. The Department for Education reported that 8.8% of student loan borrowers who entered repayment in 2009 had defaulted by the end of 2010, up from 7% for those entering repayment in 2008.
However, ACG believes that by opting for carefully constructed repayment plans, students can avoid defaulting on their loans.
Strumello suggests that students enlist the help of a loan servicer to choose their best repayment schedule. He specifically highlighted loans that gradually increase in payment amount so that consumers are required to pay greater amounts when they have larger incomes.
“I would suggest reaching out to the servicer of the student loan to learn about what kinds of repayment options that are available, because it is in their best interest to help the graduates find a payment option that fits their needs rather than risk the student defaulting,” Strumello said.
TICAS highlights the Income-Based Repayment schedule as a student loan tip for recent college graduates, calling it an important option that adjusts the amount of the payment to be a reasonable portion of the monthly income.
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