What is the Student Loan Forgiveness Act and Is It a Good Idea?

Earlier this year a new bill was introduced to Congress called the Student Loan Forgiveness Act of 2012.

The potential legislation has some massive changes for the student loan industry.  Is this new student debt legislation a good idea or something that should be shelved by Congress?

What is the Student Loan Forgiveness Act?

The Act would make wide changes to the massive student debt load in the country.

In 2010 total student loan debt exceeded total credit card debt for the first time.  The Act is also in response to a poor economy: the idea is that former students are too cash strapped from paying their loans to spend any money in the economy and relieving them of this debt would greatly improve the consumer economy.

10/10 Payment and Forgiveness

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The History of College Student Loans

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Every other week, it seems, we hear dire warnings about how much debt our college students are burdened with when they graduate.

Indeed, more than ½ of college students take out student loans, and the average student loan tab for a graduating senior is just over $25,000.  Coupled with a rough economy and a general lack of financial knowledge, recent college graduates are struggling financially like never before.

Yet, it hasn’t always been this way.

Many of us just grew up knowing that student loans have, and will be, available, but that hasn’t always been the case.

A Brief History of College Student Loans

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Have a Student Going Off to College? Teach Your Child about Student Loan Debt

If you have a soon to be graduating high school senior, she has hopefully been accepted to several schools and is in the processes of deciding which to accept.

Your high school students should be blissfully debt free right now, but as soon as she decides what school to attend, that may all change.

Far too many students decide what college to attend because they like the campus or the atmosphere or because they want to move far from home.

Ideally, before she even begins to apply to colleges, you, as the parent, should sit down with her and discuss finances.  This conversation should occur no later than before your child makes a decision as to what college to attend.

Most parents would like to pay for their child’s entire college education, but that is often not possible due to the current economy and rising tuition costs.

Chances are, if your child attends an expensive university or private college, she will have to take out student loans, sometimes tens of thousands of dollars worth of student loans.  The cold reality is that she may be paying these loans for the next 10 to 20 years, and she may have to delay important life events such as getting married, having a child and buying a home all because of her student loan debt level.

Ignorance Is Not Bliss

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A Victory for College Students – Student Loan Rates Remain Low for Now

Until June 29th, a big problem was brewing for college students but less than two days before the deadline, Congress agreed on a bill that would avert larger student loan payments for some students.

The cost of college rises at roughly twice the rate of inflation each year.  This equates to nearly 6% annually and that has made college tuition out of reach of the majority of families that didn’t save for education costs.  Because of that, most students now rely on grants and loans to pay the costs.  Grants quickly run out for most leaving student loans as their only option.

The federal government helps by offering two types of loans, called Stafford loans.
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Should Every Student Pursue a Four Year College Education?

The availability of student loans has changed our financial and employment landscape. 

While attending college used to be something just a few did, “We now send 70 percent of high-school graduates to college, up from 40 percent in 1970,”according to Marty Nemko, a career counselor based in Oakland California (The Chronicle of Higher Education).

While 70 percent of high school graduates attend college, the number of students who graduate with a degree is smaller.  Even when a student does obtain an undergraduate degree, a job is not guaranteed.

“Among the members of the class of 2010, just 56% had held at least one job” (The New York Times) by the spring of 2011.

This naturally begs the question, should all high school graduates attend a college?  Should attending college be something we encourage our children to do?
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Education: Your Hedge Against Inflation

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Every now again, we hear about inflation, and the way it erodes your earning power.

As prices rise, you either have to earn more money, to keep pace, or you have to cut back on your spending so that you aren’t using as much of your money.

Most people prefer to look for better returns.

The right investments, or leveraging your money on low-rate loans to position yourself for the future, can help you make the most of your money now and hedge against inflation.

However, you can also hedge against inflation in a more indirect way: Get an education.

Higher Degree = Better Earning Power

You’ve heard stories about how someone with a degree makes more money than someone without one.  And, for the most part, it’s true.  If you invest in a college education, you are repaid with a higher lifetime earning power.

Take a look at the following chart from the Bureau of Labor Statistics on how education pays off:

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Student Loan Debt Bubble – Is This Our Next Economic Crisis?

As if the student loan problem wasn’t already approaching crisis levels, it may get a lot worse.

In 2010 more than $100 billion worth of student loan debt was taken out, making the total amount that Americans owe for education now more than $1 trillion.

The average graduate leaves school with $25,250 in student loan debt and faces decades of payments.

Although the recent student loan reform may ease the burden by making it possible to lower the payments based on the borrower’s level of income, some students face loan payments that are higher than they would pay on a modest size home mortgage.
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