As has been reported in recent articles, the amount of student loan debt nationwide exceeds $1.2 trillion and the average debt load of students borrowing for college is about $30,000. We are fortunate in Kentucky that our average debt-load, although increasing, is below the national average. Still, excessive borrowing and student loan defaults are becoming a real burden on Kentucky students and families.
Families should start saving early for their children’s education to eliminate or reduce the potential loan burden on their students, such as by setting up a 529 plan. (A 529 plan is an education savings plan offered by many states, including Kentucky, which offers many tax advantages. The Kentucky Higher Education Assistance Authority (KHEAA) is the state agency that administers this program.) Students should exhaust all non-loan financial aid options including federal Pell Grants, state grants such as Kentucky Educational Excellence Scholarships (KEES), College Access Program (CAP) grants, Kentucky Tuition Grants (KTG) as well as institutional grants and scholarships offered by the colleges and universities. If needed, loans should be a last resort and only taken for necessary educational expenses.
Students should explore all less expensive alternatives when searching for a postsecondary institution to attend, using net cost (cost after student aid) to evaluate their options. They may also want to consider beginning their education at a nearby community and technical college to keep costs as low as possible. Students choosing this path should be able to transfer to a four-year college or university after their first two years without losing credits if they plan ahead and visit the KnowHow2Transfer website at www.knowhow2goky.org/kh2t/index.php.
Upon graduation, students generally are able to get the type of job that will provide the resources necessary to repay their student loans. However, given that attaining a college degree is the strongest single predictor of not defaulting on student loans, students should carefully choose a college and degree that are a good fit for them.
If students have difficulty repaying their loans, there are many options available to avoid default. These options include:
· Income driven repayment plans based on the borrower’s level of disposable income.
· Extended plans that allow the borrower to spread the repayment period over a 25-year period.
· Graduated payment plans that start with lower payments that increase every two years.
· In the event of an economic hardship, the borrower may be eligible for a forbearance, which allows no payments for a short period of time.
The biggest problem occurs when students do not contact their loan servicer or avoid servicer calls that could explain the options for repayment. With the varied options available to borrowers, there is little reason to ever default on a student loan.
If a student defaults on a student loan, there can be severe consequences. Upon default, a collection charge of up to 24% of the balance is added to the loan amount due. Credit agencies are notified and the ability to obtain credit at good terms in the future is put at-risk. In addition, a defaulted borrower may be subject to having wages garnished, or tax refunds taken. These loans are rarely dischargeable in bankruptcy, so there is little likelihood of not being responsible for repayment. Students may rehabilitate their loans one time after their initial default, but this requires contacting their loan servicer and making nine payments over a 10-month period.
Kentucky does have a serious student loan default problem. We rank third in the nation in percentage of students defaulting on these loans. All parties involved share in the responsibility of avoiding defaults. Students need to accept responsibility for the borrowed money that allows them to pursue their postsecondary education. Our colleges and universities need to recognize that if they accept a student, it is their responsibility to offer the student every opportunity to be successful by providing needed resources such as tutoring, counseling and course offerings to accommodate on-time graduation. The General Assembly needs to assist students with financial need by appropriating the statutorily required lottery proceeds that this year alone would have provided need-based aid to an additional 25,000 students. Financial literacy programs need to be offered to students and families that provide skills to enable smart higher education choices. (KHEAA helps fill this need by providing certain financial literacy programs for Kentucky.)
If students have questions about financial aid or their student loans, they may call KHEAA at 1-800-928- 8926. To find information online about individual student loans go to the National Student Loan Data System at www.nslds.ed.gov/nslds/nslds_SA.
Dr. Carl P. Rollins is the Executive Director of the Kentucky Higher Education Assistance Authority.