Story by Derek Langhorn
For many students seeking a college education, taking student loans may be the only option for covering tuition, however, this often leads to a huge amount of debt. According to The Consumer Financial Protection Bureau, total student debt in the U.S had reached $1.1 trillion in 2012, making it the second largest source of debt in the country, behind home mortgage.
Student loans have tripled in the last few years, and millions of dollars a year are given out in loans, said Ken Bronstein, the director of finance at Whatcom Community College said.
Jack Wollens, the director of financial aid at Whatcom, said the number of Whatcom students who are taking out loans has increased significantly in the last few years. There were 1,182 students who took out loans in the 2011-2012 school year and only 662 students took loans in the 2009-2010 school year, he said.
“The debt is rising because the accessibility to money is so easy for students,” Bronstein said. He added that because many students believe they have no other way to pay for tuition besides federal student loans, and they may not look for other ways to pay for college, he said.
Students can take federal loans or private loans, typically, private loans have variable interest rates, which means the interest rate can change, and often there is no cap on how high the interest rate can go, so students should just stick with federal loans, Wollens said.
There are two types of federal student loans, subsidized and unsubsidized. Subsidized loans’ interest is paid for by the U.S. Department of Education while students are continually enrolled at least six credits worth of college classes. Unsubsidized loans begin accumulating up interest as soon as students them, and have a higher interest rate than subsidized loans.
Students must start repaying both subsidized and unsubsidized federal loans if they stop taking at least six credits for more than six months.
Subsidized loans are given out to students who have financial need. Unsubsidized loans are available to all students and students do not have to prove that they have a financial need for them. Because student loans are readily available, man students apply for them without thinking about how they will repay them in the future, Bronstein said.
Some students do not know what they are getting into when they take loans, Bronstein said. “[Students] get in over their head,” he said. “If you come out on the other end with a job that can’t pay the debt, what do you do?”
Students who cannot pay their loans sometimes run the risk of becoming delinquent on payments, and can reach the point of defaulting on the loan. Default typically occurs when the borrower does not make a payment for 270 days.
When a borrower defaults, the full price of the loans, including interest, is due in full immediately. The IRS can take all of a borrower’s tax refund to pay off the loan. The U.S. government can also contact the loan recipient’s employer and garnish wages.
Because of the lack of knowledge of what students are getting into, the default rate has increased, Bronstein said. The default rate has increased steadily over the years, and as of 2011, the default rate stood at 9.1%, according to the U.S. Department of Education.
Student debt is a major issue at Whatcom, Bronstein said. “The [student] debt that has been turned over to collections at Whatcom is about $200,000 over the last three years,” he said.
One way to help reduce student debt and lower the default rate is to increase student awareness of the full conditions of a loan agreement, Bronstein said.
Wollens said that one way a student can be more proactive and avoid defaulting on their loans is by finding out who their loan servicer is, and verifying when they need to begin making payments. A loan servicer is a company that handles the billing on loans, and is assigned to the borrower by the U.S. Department of Education. By being proactive and maintaining communication with the loan servicer, many students can avoid falling into default, Wollens said.
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