College grants generally do not provide enough money to pay for a university education and scholarships are very difficult to get. Most scholarships award only a small amount of money. This leaves many students with large tuition bills that they have to pay on their own. So many students in the United States end up taking out student loans to pay for their university studies. Once they graduate, it is time to start paying back those loans. But for students who take out large loans, unless they graduate and get a high-paying job right away, it can be difficult to pay back the loans as planned.
With more and more student debt piling up, it is worth pointing out the top five reasons why the US student loan program is unfair to the students who borrow money to finance their higher education. This blog then makes suggestions for what students can do to better take charge of their student loans to prevent further debt from piling up due to high interest rates.
The problem with the US student loan program lies with the various loan service companies that handle student loan repayment. Here are five things borrowers need to be aware of:
1. When students repay their student loans, they have no choice over which loan service company they will be working with.
2. The Department of Education’s federal Direct Loan program lacks federal standards regarding the behavior of loan service companies.
3. Loan service companies usually do not inform their customers that they are eligible for loan relief. Loan relief means that the repayment plans for federal loans are based on the size of one’s family and the borrower’s income level. With loan relief, it is possible to prevent a mountain of debt from accumulating and to pay off student loans in reasonable doses over time. In addition, there are debt forgiveness programs for those working in the public sector. While those in the military have the right to lower interest rates if on active duty.
4. Loan service companies tend to encourage loan forbearance for borrowers who have trouble paying their student loans. This means that the borrower stops making payments temporarily and interest accumulates. In addition to a typical $150 fee for putting the loan into forbearance, a mountain of debt can build up, only making matters worse for the borrower in the long run.
5. Loan service companies can hand a borrower’s business over to another loan service company without notice. Customers also need to keep aware of the name of the loan servicing company they are dealing with, because the companies can change unannounced. That means that customers who set up automatic payments are most vulnerable because if the loan servicing company changes, the automatic payments also need to be changed as well.
The US student loan system is not designed in the best interests of students, according to a New York Times article published in its finance section 12 October 2015. The article reports an increase in student loan debt in the United States, with an average loan due of $20,000 in 2014, up from $13,000 in 2007.
Companies that process student loan repayments include: Navient, Great Lakes, and Discover Bank. One of the loan servicing companies, Discover Bank, paid $18.5 million after a case was brought against it by the Consumer Financial Protection Bureau. The Bureau said the loan servicing company had inflated the amounts it said borrowers owned on their loans. Discover Bank neither admitted nor denied wrongdoing.
Borrowers need to express their interest to their loan service companies that they wish to engage in loan relief. Seeking a job in the military or the public sector can also be a big help in reducing student debt upon graduation.