MONEY Opinion

What Congress Should Do to Give Student Loan Borrowers Hope For Relief

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Blend Images - Hill Street Studi—Getty Images/Brand X

Student loans are the only debt that can't be discharged in bankruptcy. Joe Valenti and David Bergeron of the Center for American Progress argue for two law changes to fix this.

Steve Mason’s story could keep any parent up at night.

The Redlands, Calif. pastor co-signed $100,000 in private student loans for his daughter Lisa to attend nursing school. But Lisa died suddenly at age 27.

Now, the loans intended to ensure her financial future are threatening to impoverish her parents and their three young grandchildren because Mason remains on the hook for the loans. He is struggling to provide for his family while trying to negotiate with lenders to settle on his daughter’s debt which, with interest and penalties, now totals about $200,000.

If he had co-signed a car loan for his daughter, or if his family had racked up credit card debt, or nearly any other kind of debt, the Masons would have had a way out: bankruptcy. Our Founding Fathers, appalled by British debtors’ prisons, created bankruptcy courts to give Americans that are struggling with debt a chance to reduce or even erase those financial burdens, and gain a fresh start.

Unfortunately, Congress has carved out an exception to this American promise: student loans.

The student loan exception to bankruptcy laws ignores tragic life situations of students, parents, and grandparents alike. And it should be changed. A common-sense approach to bankruptcy reform would help struggling families like the Masons while promoting a better student loan system for everyone.

How Student Loans Became the Exception to the Rule

Until 1976, all types of loans were treated equally under bankruptcy law. But that year, Congress passed the first exception, declaring that bankruptcy judges could only dismiss federal student loans under the direst of circumstances.

In 2005, Congress expanded the exception to include private student loans—those made by banks and credit unions.

Now, bankruptcy judges are only allowed to discharge the student loans of those who have proven they have “undue hardships,” which generally means never being able to work again.

The death or disability of a borrower discharges federal student loans. But private loans—such as those the Masons took out—don’t have those provisions. So private student loans plague those who are disabled as well as the survivors of those who have passed away, such as the Masons.

All together, under current law, it is next-to-impossible to get rid of any kind of student debt in bankruptcy.

How to Fix the Problem

Here are two simple steps that would help make student loans fairer and more bearable:

1) Allow judges to wipe out the private student loans of any private lender that fails to:

A) Discharge loans in the cases of death and disability, as the federal government does.

B) Charge reasonable interest rates.

C) Allow borrowers repayment flexibility, such as deferment and forbearance options for those in financial difficulties.

2) Allow judges to wipe out any student loans—including federal loans—taken out for colleges that:

A) Have high dropout rates.

B) Have high student loan default rates.

Lenders who charge reasonable rates, allow flexible repayment and wipe out the debts of the disabled and deceased could be considered “qualified” for the current tough bankruptcy rules. Bankruptcy would remain the narrow path of last resort it was designed to be for borrowers. But lenders who don’t meet these standards—basically, those that don’t give borrowers any way out—would be subject to the same bankruptcy laws as other lenders.

Schools, too, would need to earn the bankruptcy exemption for the programs they offer. If students are not likely to complete the programs they’re borrowing for, or generally don’t earn enough to pay back the debt, their federal or private student loans would be dischargeable. There is no sense in penalizing students, parents, and grandparents lured by false promises of success.

Indeed, a study two decades ago by the U.S. General Accounting Office found that low-income borrowers who dropped out of poor-performing schools were the borrowers who most frequently defaulted on their loans—not successful young grads simply trying to walk away from their obligations.

It is economic circumstances, rather than moral failings, that often brings families to bankruptcy as a way to deal with difficult and unforeseen situations. Surely the Masons could not have anticipated their current situation. And it’s probably a situation that no member of Congress anticipated either when they closed the doors of bankruptcy court to virtually all student loan debtors.

These are doors that Congress, and Congress alone, can reopen for students, parents, and grandparents who have fallen on hard times to have equal access to the same courts that the wealthy and corporations have used to make a fresh start. And these doors can be opened strategically to make sure bankruptcy remains a last resort.

Otherwise, families like the Masons will continue to struggle needlessly.

Joe Valenti is the Director of Asset Building at the Center for American Progress. David Bergeron is the Vice President of Postsecondary Education at the Center for American Progress and former assistant secretary for postsecondary education at the U.S. Department of Education.

TIME Money

I Don’t Have Student Loans and I Don’t Feel Bad for People Who Do

A pile of student loans
Zephyr Picture—Getty Images

You probably could have gotten your degree at a more affordable university closer to home. You might have even been able to live with your parents, like I did

xojane

This story originally appeared on xoJane.com.

My father is not a Wall Street banker. I’m not a member of the so-called “1 percent.” My mother isn’t an heiress and I’m not some genius who earned a full scholarship to the institution of my choice.

Yet somehow, by what most of my friends think was the wave of some fairy godmother’s wand, I graduated college without student loans.

Stats from the Department of Education show outstanding student loans total more than $1 trillion. A report from The Institute for College Access in late 2013 revealed the average new graduate starts his or her life with $29,400 in student loan debt. College as we know it is clearly unaffordable.

So my question is: Why do people keep embarking on the “traditional college experience” when they know it’s going to put them tens — sometimes hundreds — of thousands of dollars in debt?

And while some people say these 18-year-old kids don’t know what they’re getting themselves into, let’s not pretend we don’t know better. I distinctly remember asking my friend how he would pay off the roughly $70,000 debt he would incur to obtain a major in Ancient Greek and Latin at a liberal arts college in the Midwest. His answer? A simple shrug and flippant “It’s not something I have to worry about right now — hopefully they’ll be forgiven by the government.” Now that he’s still waiting tables four years after graduation, I’d say it’s well past time to start worrying.

I can’t pretend I completely understand how these people feel after the fun is over and the repayments begin, but I can say that I really don’t feel bad for them.

Why not? Because I worked hard to avoid taking out loans. My wonderful parents and grandmother helped me pay for my education, but in the end, it was a few decisions I made that saved me the burden of borrowing money I would never have been able to pay back. Unlike the majority of my friends who went to schools less than an hour from their parents’ homes and chose to live on campus rather than commute, my college roommates were named Mom and Dad. I chose state schools that were half, sometimes one-quarter, of the cost of the schools my friends were attending and worked a part-time on-campus scholarship job in addition to full-time hours at my retail job. I spent the four years of my life designed for partying essentially reliving my high school years. And yes, it was awful.

Imagine the stereotypical American college experience. You pick some private university in the middle of a cornfield with a tuition price of about $36,000 a year, plus room and board, party it up every night since you’ve finally escaped the teenage hellhole known as your family’s home, and stumble into your Symbolism in Harry Potter seminar at 11 a.m. still half-drunk and probably reeking of Icehouse. You join a sorority, get vomit in your hair more times than you’re willing to admit publicly, and spend half the day on whatever flavor-of-the-week social media site the guy you currently like is active on.

Sounds fun — until you realize all this will probably leave you at least $30,000 in the hole upon receiving that diploma. And guess what? Unless you absolutely needed some highly specialized major that was only offered at a few schools, chances are you probably could have gotten your education/accounting/psychology degree at a much more affordable university closer to home. You might have even been able to — gasp — live with your parents.

My college experience couldn’t have been further from the scenarios most of my friends lived, but I guess that’s what happens when you opt for the cheap route. You thought your college roommates were weird? Try living with a mother who has a disturbing penchant for singing Chris Brown and LMFAO songs and accidentally throws a Sharpie in the dryer with your load of freshly washed (and now ruined) clothes.

Remember that friend you had who went through a different boyfriend each week? This habit of constantly picking up something new applies to my father, but in the form of hobbies, not college-aged jocks. During my time living at home in college, I think it is safe to assume my dad acquired roughly 70 new pastimes. Among them were more traditional leisure activities like drawing, but a few were rather unusual — beekeeping, winemaking, beer brewing, and pretending to make merkins out of the hair the dog was shedding.

Of course, we can’t forget the fact that my younger brothers were also living at home during this period, albeit at separate times. Never underestimate the power of annoyance a brother yields — this is especially true when your youngest sibling loves Mariah Carey and weightlifting and has a tendency to say things like “I’m looking pretty vascular today,” as he downs a protein shake and six chicken breasts. You may find it’s uncomfortable to invite friends over when they’re home on college breaks as your brother, in an effort to show off his muscles, is in a near-constant state of undress, prompting your father to create a rule that forbids shirtlessness in the kitchen.

And the middle brother one of your high school friends thought was so cute? He’s not looking so cute these days when she comes over and he’s passed out on the couch — probably hungover — in his tighty whities with a half-eaten box of Oreos on his chest. When he wakes up from that nap he’s going to drink your apple juice — which, by the way, he doesn’t even like — just to piss you off. And if he’s really feeling like living dangerously, he’ll probably polish off that giant muffin you couldn’t finish and specifically labeled “FOR JES – DO NOT EAT.”

It wasn’t your average sorority house or dorm room, but it saved me tens of thousands of dollars, considering room and board at most universities in Chicago is roughly $9,000 a year. I’m not even going to pretend to feel sorry for my friends who moan about the financial crunch of paying back the money they borrowed to pay for their dorm rooms or off-campus apartments. After all, you get what you pay for — if you wanted your student housing to be free, you probably should have been prepared to listen to your mom singing that song about Apple Bottom jeans whenever you came home from class.

I’m curious about how everyone else went about the ever-growing student loan issue during college. Did anybody live at home to avoid taking out loans or keep their student debt to a minimum? And for the ladies with loans: Do you wish you’d done anything differently during your college years to limit your debt?

Jessica Slizewski is originally from Chicago but currently lives in New Zealand.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY Millennials

How Millennials Stalled the Housing Market Recovery

Wrecking ball hitting brick wall
Steve Bronstein—Getty Images

Millennials already have to deal with hefty debt from college, an iffy job market, and growing up in an era where MTV no longer plays music videos, but now they’re being blamed for holding back the real estate boom. Homebuilder adviser John Burns Consulting published details from a study earlier this month concluding that student loan payments will cost the housing industry 414,000 transactions this year that would have totaled $83 billion in sales.

Ouch. The ivory tower is crumbling at the foundation.

It’s been widely assumed that mounting student debt is eating away at this otherwise buoyant housing market recovery. John Burns Consulting’s study — boiled down to a free one-pager for those that aren’t paying customers that got the more thorough report — attempts to quantify the impact.

How did the adviser arrive at $83 billion? Well, we start with the 5.9 million households under the age of 40 that are paying at least $250 in student loan debt, nearly triple the 2.2 million leveraged college grads in the same predicament back in 2005. We then get to the assumption that $250 earmarked for student loan debt every month reduces the buying power of a potential homebuyer by $44,000. That’s bad, and it’s naturally worse depending on how much more than $250 a month some of these indebted students have taken on to pay back. That’s less money they can commit to a mortgage. John Burns Consulting offers up that most households paying at least $750 a month in student loan have priced themselves out of the housing market entirely.

It gets worse

The study only looked at folks between the ages of 20-40. That’s a pretty sizable lot, especially since 35% of all households in that age bracket have at least $250 a month in student debt. However, even John Burns Consulting concedes that there’s “a big chunk of households over age 40 who have student debt” as well. It’s not likely to be as bad, naturally, but it’s all incremental at this point.

This report also happens to come at a time when the housing industry is starting to flinch after a couple of years of boom and bounce. Right now everything seems great. New home sales data released this past week showed the industry’s highest monthly growth rate in more than six years. However, the near-term outlook is starting to get hazy.

Shares of KB Home KB HOME KBH 0.7552% shed more than 5% of their value on Wednesday after reporting uninspiring quarterly results. Revenue and earnings fell short of expectations, and the same can be said about its number of closings and order growth. Earlier this month it was luxury bellwether Toll Brothers TOLL BROTHERS TOL 0.1896% setting an uneasy tone after posting a year-over-year decline in the number of contracts it signed during the period and an uptick in the cancellation rate for existing home orders.

It gets better

The student debt crisis is real, and the skyrocketing costs of obtaining a postsecondary education naturally open up the debate of its necessity. However, it’s also important to remember that university grads are earning far more than those that don’t attend college.

Source: U.S. Department of Education, National Center for Education Statistics. (2014). The Condition of Education 2014 (NCES 2014-083), Annual Earnings of Young Adults.

The median of annual earnings for young adults in 2012 was $46,900 for those with a bachelor’s degree, $30,000 for those with just a high school degree or credential and $22,900 for those who did not complete high school. Those going on to grad school for advanced degrees — and that’s where student loans can really start to pile up — are at $59,600 a year.

In other words, most college grads, and especially grad school graduates, are typically better off than those that didn’t pursue higher education, even with the student loan albatross around their white-collared necks. The housing industry would be better off if colleges were cheaper or if student debt levels were lower, but the same can be said about purchasing power in general. At the end of the day, debt-saddled or not, the housing industry needs its college graduates.

MONEY College

Choosing a College Major by Age 16 Pays Off. Here’s Why

Forget the old thinking that kids could wait until college to decide a major. Today, they really ought to be making this decision before their junior year of high school.

I know what you’re thinking: How can I suggest such a thing? Why would we put that kind of pressure on high school students? Shouldn’t they be allowed to explore their interests in college first before having to declare a major?

But what’s the alternative?

By the time most students lock down their major, they’re halfway through their college career or nearly out the door. By some estimates, 80% will change their course of study at least once before graduation. And, we’re telling them not to worry about it. Just take your time, explore your interests and get your diploma.

But with students’ future financial health on the line, discussions around major choice and career path are just happening too late.

Delaying these important decisions could leave a student needing more than four years to complete the class requirements necessary to get a degree, and additional semesters or years add to the already burdensome cost of an education. For bachelor’s degree grads in the class of 2013, average education debt was almost $38,000, according to a report by Edvisors.com.

Additionally, what if a student ultimately ends up choosing a major that leads them into a low-paying field after they’ve already decided on a high-cost school and taken on substantial amounts of student loan debt?

Income-driven repayment plans from the federal government may offer some help for those that choose less lucrative career paths, but these plans do extend the repayment period from the typical 10 years to 20 to 25 years. This could mean that in the years when your children should be thinking about saving for retirement or for their own kids’ education, they’ll still be paying off their student loans. And, these plans won’t apply to any private loans used to fund college.

Major choice, and ultimately career path, should help guide your child’s choices around where to attend college and how much education debt they can afford in the long run. These choices have far-reaching implications. Here at PayScale, we just released data on salary potential for 121 associate degree majors and 207 bachelor degree majors as part of our annual College Salary Report. Understanding earning potential should be a pre-requisite to signing any student loan documents.

Big life decisions are scary, but mountains of debt (and the prospect of your college grad moving into your basement) are much scarier. Twenty-eight percent of Millennials have had to move home with their parents after college due to financial hardship. You’re not doing your son or daughter any favors by advising him or her to delay the decision on a major.

It’s not all on you as the parent either. High school curriculum should be helping students understand real-world applications for what they’re learning and guiding them into career paths for which they’re well-suited. “Career day” doesn’t cut it anymore.

And, I bet if you asked the average 10th grader which careers will have to use algebra on a regular basis, they couldn’t tell you. We need to be showing them why the subjects they’re studying matter and how they apply to careers they may be interested in pursuing. We need to expose them to careers they might not even realize exist.

Even if your kid doesn’t definitively choose a major by the time they graduate high school, starting these conversations early can only benefit them.

Lydia Frank is editorial director at PayScale.com, a site that provides on-demand compensation data and software to employees and employers.

MONEY Student Loans

Why Refinancing Your Federal Student Loans Could Cost You

When you consolidate with a private lender, you can lower your interest rate. But in exchange you lose valuable consumer protections.

People with federal student loan debt now have a few options to lower their rates with private consolidation loans, but consumer advocates warn they could be giving up vital protections in doing so.

Royal Bank of Scotland Group Plc’s Citizens Financial Group recently expanded its student loan refinancing program to include federal as well as private student loans. The bank joins two much smaller, peer-to-peer lenders, SoFi and CommonBond.

All three lenders say they counsel potential customers about the consumer protections lost when federal debt is refinanced into private loans. Those protections include access to federal income-based repayment and forgiveness programs as well as generous forbearance and deferral options.

“Those are very important rights,” says Persis Yu, staff attorney for the Student Loan Borrowers Assistance site run by the National Consumer Law Center.

Yu questions whether the borrowers targeted by these lenders understand how vulnerable they are to financial setbacks such as job losses.

“A lot of people think they’re not ever going to default,” Yu says, “but there are very high delinquency rates on student loans.”

Who’s getting loans

So far the lenders are wooing the lowest-risk borrowers: graduates with steady jobs, good credit and enough income to pay down their loans.

CommonBond, which has refinanced about $100 million in student loans so far, restricts its prospective clients even further to those with business, law, medical, or engineering degrees, says Chief Executive Officer David Klein.

The lenders tout variable rates that start at less than 3%. Fixed rates can be as low as 3.6% at SoFi and Common Bond, while Citizens’ lowest is 4.74%.

By contrast, current interest rates for new fixed-rate federal Stafford loans are 4.66% for undergraduates and 6.21% for graduate and professional students. Borrowers with older federal debt may have rates as high as 8.5%.

While the best rates on consolidation loans are reserved for the most creditworthy borrowers, Citizens has been able to lower its typical customer’s rate by 1.5 percentage points when refinancing private loans, says Brendan Coughlin, the company’s president of auto and education lending.

A one-percentage-point decrease corresponds to annual savings of about $50 per year on each $10,000 of debt, says Mark Kantrowitz, publisher of Edvisors.com, a college finance education site. The savings generally are not enough to make it worth giving up income-based repayment and forgiveness options, he says.

Borrowers who struggle to pay their debt are typically locked out of refinancing due to lenders’ high underwriting standards.

“We’re approached by people who are having a really difficult time with their payments,” says Mike Cagney, CEO of SoFi, which so far has refinanced about $1 billion in federal and private loan debt. “We’re not a good option for them.”

Parents may benefit

Parents who have federal PLUS loans, however, might consider refinancing into a private loan if they can win a large-enough interest rate reduction, Kantrowitz says.

Parent PLUS loans are not eligible for income-based repayment options or forgiveness, although they still offer up to three years of forbearance and deferral options. Private consolidation loans typically offer up to one year of forbearance.

“Generally, refinancing federal parent PLUS loans into a private consolidation loan might be financially beneficial if the interest rate will decrease by at least two percentage points and the borrower has at least $20,000 in [such] loans,” Kantrowitz says.

“Students, on the other hand, should still not refinance their federal student loans into a private consolidation loan.”

Parents with the high credit scores and solid incomes necessary for a private loan consolidation presumably would be able to make informed decisions about the necessary trade-offs between a lower interest rate and the loss of federal education loan benefits, Kantrowitz says.

A proposal to lower rates on existing federal student loan debt died this summer when Senator Elizabeth Warren, a Massachusetts Democrat, failed to get the 60 votes needed to advance her bill. The legislation, which would have allowed people with federal and private loans issued before 2010 to refinance at 3.86 percent, received 56 votes for and 38 votes against it.

MONEY Social Security

How Student Loans Are Jeopardizing Seniors’ Retirements

Senior overwhelmed with debt
Chris Fertnig—Getty Images

Old debts are haunting retirees, as the federal government goes after their Social Security checks for repayment.

It’s a rude awakening for a growing number of seniors: They file for Social Security, then discover that the federal government plans to take part of their benefit to pay off delinquent student loans, tax bills, child support or alimony.

This month the U.S. Government Accountability Office (GAO) released findings on the problem of rising student debt burdens among retirees—and how the government goes after delinquent borrowers by going after wages, tax refunds and Social Security checks.

Under federal law, benefits can be attached and seized to pay child support and alimony obligations, collection of overdue federal taxes and court-ordered restitution to victims of crimes. Benefits also can be attached for any federal non-tax debt, including student loans.

It seems the student loan crisis isn’t just for young people. The GAO found that 706,000 of households headed by those aged 65 or older have outstanding student debts. That’s just 3% of all households, but the debt they hold has ballooned from $2.8 billion in 2005 to about $18.2 billion last year. Some 27% of those loans are in default.

If you’re among the 191,000 households that GAO estimates have defaulted, your Social Security benefits can be attached and seized.

“When that happens, the federal government pays off the creditor, and now it’s a debt to the federal government,” says Avram L. Sacks, an attorney who specializes in Social Security law. “So they can go after you for the loans—and now that students are reaching retirement age, long-forgotten debts are coming back to haunt them.”

The amounts that can be seized are limited, and the maximum amounts vary. In the case of any federal non-tax debt, including student loan debt, the government can take up to 15% of your monthly Social Security check. That’s a painful bite for low-income seniors living primarily on their benefits.

The law prohibits any attachment due to a federal non-tax debt that reduces a monthly benefit below $750. (Federal tax debt is not subject to this limitation.) Retirement and disability checks can be attached, but Supplemental Security Income—a program of benefits for low-income people administered by the Social Security Administration—is exempt.

In alimony or child support situations, garnishment is limited to the lesser of whatever maximums are set by states or the federal limit. The federal limits vary from 50% to 65% depending on how much the debt is in arrears and on whether the debtor is supporting a spouse or child. In victim restitution cases, the limit is 25% of the benefit.

Benefits can be deducted through an “administrative offset” against the amount the government sends you or through garnishment. In the case of garnishment, banks are required to protect the two most recent months of benefits that have been paid into your account, and the bank must notify you within five days that benefits have been attached.

Sacks advises people who have had benefits attached to establish stand-alone bank accounts for their Social Security deposits. “It’s much more simple and safe, and makes it much easier to trace funds,” he says.

Sacks says the government has been going after benefits more often because of changes in federal law and court rulings that have widened its powers. He urges people in their pre-retirement years to make every effort to pay off delinquent debts.

“It can be painful, but consider going to legal aid or finding a non-profit debt counselor who can help negotiate repayment. The worst thing is to ignore it.”

The government can go after delinquent debt while you’re working—but that requires a court judgment. ” are a known asset over which the federal government has total control,” says Sacks.

He adds that people sometimes are blindsided by garnishment for unpaid debts they had forgotten about. If you’re not sure about a federal debt, contact the U.S. Department of the Treasury’s Bureau of the Fiscal Service (800 304-3107), which serves as a clearinghouse for debts.

If the bureau shows a debt that you dispute, contact the agency that is owed. Do the same if your benefits already have been tapped. “Don’t try to deal with the Social Security Administration,” says Sacks. “They don’t have direct responsibility for the attachment.”

Finally, Sacks notes funds not in the bank can’t be garnished. Most people don’t hang on to Social Security benefits for long—they’re used to meet living expenses. “I hate to urge people to keep money under the mattress, but money that’s been sitting in a bank account for more than two months is exposed to attachment.”

MONEY Student Loans

8 Ways to Stop Student Loans From Ruining Your Life

Hello my debt is $127,086 name label
MONEY (photo illustration)—Shawn Patrick Ouellette/Getty Images

New tools and services are making it easier to lower your monthly payments, pay off loans faster, and avoid borrowing too much in the first place.

As tuition and student debt have soared, so has the number of college graduates struggling financially under the weight of hefty school loans. About one in four borrowers is at least a month behind on their federal student-loan payments, the Department of Education reported this summer, and the number of defaulters has jumped by more than 500,000 in the past year, bringing the total number of student loans gone bad to about 7 million. And that’s not even counting the many more borrowers who keep up with their payments but find themselves stretched to make rent, buy groceries, pay everyday bills, or start saving for the future.

The ray of hope in this black cloud: A growing number of government programs and private start-ups are offering new tools and services to help student borrowers avoid borrowing too much, get out from under onerous monthly payments, or dig their way out if they’re in financial trouble.

Here’s what you need to know to get your student loans under control, no matter where you are in the borrowing process:

If you’re currently a student—or will be soon:

Look for colleges that help you rely less on loans. Uncle Sam is making it easier for students to identify and avoid colleges that tend to overload students with debt. The Department of Education is cracking down on colleges with high default rates—an indication that students there routinely have to take on more debt than they can afford. Schools where 40% of borrowers stop making loan payments over a three-year period, for instance, will no longer be eligible for federal loans to students. In addition, the agency is posting each college’s default rate online. Favor schools with low three-year default rates: “At four-year schools, 5% is pretty reasonable,” while anything above 10% should be considered a danger sign, says Ben Miller, a former DOE official who is now a senior education policy analyst for the New America Foundation. You can also check out MONEY’s list of The 100 Best Private Colleges If You Need Student Loans, which identifies the schools with the best records of manageable debt loads, and the 25 Most Affordable Colleges. Keep in mind, however, that all default rates and debt stats are averages, and may not reflect the personalized financial aid package you get from an individual school.

Know your limit. Don’t borrow more to get your degree than the salary you can reasonably expect to make in your first year out of school, recommends Mark Schneider, president of College Measures and the adviser to MONEY’s Best Colleges rankings. (MONEY’s Best Colleges rankings include estimates of student debt loads at graduation for all 665 colleges on the list.) If you stick with that rule of thumb, your payments will likely amount to no more than 11% of your gross income, which is usually considered a manageable amount, Schneider says. The key is to be realistic about your first-year salary, which is sometimes tough given that stats on how much recent college grads make are spotty beyond broad averages. CollegeMeasures.org offers the only data that breaks down first-year earnings by major, and they only have the figures for six states. To get a ballpark estimate, pick a state and school that seem similar to yours and search for the first-year earnings for your anticipated major. The MONEY rankings also include early career earnings data from Payscale.com, but the average annual salaries listed are for the first five years after graduation, not year one.

If you’re paying off students loans now—or will be soon:

Pick the repayment plan that suits your needs. Federal student loan programs automatically enroll all borrowers in a standard 10-year repayment plan, with first payments due six months after graduation. That’s next month for many borrowers who got their degrees in May. But the government offers six other repayment options that may result in lower payments now or allow you to delay paying altogether. The Education Department has created a simple tool that will help you figure out your best choice.The new income-driven plans are generally the most attractive because they adjust monthly bills to your salary and offer the possibility that the loan may be forgiven before you’ve totally paid it off, says Lauren Asher, president of the Institute for College Access and Success. Under these plans, if you work in a government, nonprofit, or other public service job and pay on time every month for 10 years, you can have the remainder of your debt forgiven, without paying taxes on the balance. Other student borrowers who elect income-based repayment may be eligible to have their loans forgiven in 20 or 25 years, depending on when you borrowed, but you will owes taxed on the outstanding amount.

Put payments on automatic. Most lenders cut rates or offer other bonuses if you agree to have payments automatically deducted from your bank account every month. The federal government cuts your rate by one-quarter of a percentage point, which amounts to about $500 if you pay a $30,000 debt over 10 years.

Reduce your principal. Got a little extra cash you want to use to pay down your student debt faster? Make sure it goes toward lowering the original amount you borrowed. The Consumer Financial Protection Bureau says it has received many complaints from borrowers alleging that their lenders applied extra payments to their next month’s bill instead of reducing the principal. Since it’s financially advantageous to pay down your highest-interest debt first, that can be a costly misstep. To make sure there is no confusion, the CFPB suggests borrowers send a letter to their lender with specific instructions about how to credit extra payments. Here’s their sample letter.

Reduce your rate. If you have a steady job and your monthly paychecks total at least $1,000 more than your total monthly debt, there’s a good chance you can refinance a high-interest student loan into a lower rate one that will lower your monthly costs and allow you to pay off your debt sooner. “The refinance market is heating up,” says Bill Hubert of Overture Marketplace, a loan shopping website. Refinancing a high-rate private loan into a lower-rate private one is a no-brainer. But a growing number of banks and start-ups are offering to refinance federal student loans, some of which have annual rates as high as 7.9%, into loans with rates as low as 3.6%. Weigh that decision carefully. Switching from a standard $30,000 federal Stafford loan at 6.8% to, say, a 4% private loan would cut your payments by about $40 a month, and slash the total interest you’d shell out over five years by about $5,000. But you’d lose other benefits like the guaranteed ability to switch to other payment plans and potential forgiveness of your loan.

If you’re having serious trouble making your loan payments:

Act quickly: Although it is human nature to ignore unpleasant confrontations such as those with bill collectors, there’s a big financial payoff to calling your lender as soon as you start missing payments. As long as you haven’t missed more than eight consecutive monthly payments on a federal student loan, you can switch to a more attractive payment plan and get back on track without having to pay any extra collection fees or penalties, says Jason Deslisle, a debt expert at the New America Foundation.

If all else fails, try bankruptcy. Bankruptcy should be a last resort, in part because it remains on your credit record for seven years. What’s more, any relief might be indirect. The laws governing student loans make it very difficult for bankruptcy judges to free borrowers from their student loan debt. But there are two small bits of good news for those in desperate straits: A recent study by a Princeton graduate student found that bankruptcy courts reduced or eliminated student loans for almost 40% of those who asked. Jason Iuliano found that thousands more borrowers would likely also have gotten relief, if only they had asked. What’s more, many borrowers could get relief without having to hire an attorney. Iuliano found that borrowers who represented themselves were just as successful at getting relief as those who hired attorneys.Even if you aren’t able to get relief from your student loans, the bankruptcy court will likely reduce or eliminate some of your other debts—such as credit card obligations—thus freeing up money you can use to pay off your student loans.

MONEY Student Loans

The 5 Colleges That Leave the Most Students Crippled By Debt

Almost 650,000 federal student loan borrowers have defaulted on their debt, new data shows. A handful of for-profit schools are a big part of the problem.

UPDATED: September 25, 2014

More than one out of eight students who had a federal student loan and left college or graduate school in 2011 has since defaulted—a total of almost 650,000 Americans, the U.S. Department of Education reported today.

In all, 13.7% of the 4.8 million federal student loan borrowers who graduated or dropped out of a higher education program in 2011 have gone at least nine months without making a payment on that debt.

That number is alarming to many analysts because new flexible repayment programs have made it much easier to repay federal student loans. Some of the government’s new income-driven repayment plans, for example, cap payments at 10% of a borrower’s discretionary income.

Students and parents should be wary of colleges with high default rates, advises Debbie Cochrane, research director of The Institute for College Access and Success. “At schools with both high borrowing rates and high default rates, too many students are clearly leaving school worse off than before they entered,” she says.

A handful of for-profit colleges are responsible for a disproportionate number of the defaults, according to the new government statistics.

The Education Department says it will stop making loans to students at the 21 colleges with the worst default rates. (It will cut off schools with a three-year default rate above 40%, or three consecutive three-year default rates above 30%.) Twenty of those schools are for-profit colleges.

Many of the colleges with the highest default rates are trade schools, and many are comparatively small. The Coast Career Institute, a California-based trade school with a 56% default rate, for example, currently reports having only 169 students. Eleven of the 21 colleges with the worst default records are beauty or barbering schools. On average, 19% of students at for-profit schools who left school in 2011 have defaulted.

What’s more, several other government agencies are looking into whether some for-profit colleges are trying to attract students using false or misleading marketing. Allegations of fraud leveled by the California attorney general have forced for-profit Corinthian College to shut down.

Overall, the default rates for public colleges was 12.9%. The default rate for private, non-profit colleges was 7.2%. But the four colleges with the largest numbers of defaulters were for-profit schools. They produced a combined total of more than 75,000 defaulters in the past three years.

The University of Phoenix, a for-profit company and the nation’s largest higher education system, with 242,000 students, accounted for more than 45,000 of the defaulters in the most recent three-year group. That represented 19% of all of the Phoenix students whose bills started coming due in 2011.

Spokesmen for Phoenix and an association of for-profit schools note that their default rates have been declining. The University of Phoenix’s three-year default rate for students who graduated or dropped out in 2010 was 26%, for example.

The largest producer of defaulters among public schools was Ivy Tech, a community college in Indiana, where 23% of the student borrowers who left there in 2011 have since defaulted on their student loans. On average, 20% of community college borrowers have defaulted over the past three years. Community college officials note that their students generally tend to borrow less than others because the schools charge lower tuition.

These five schools have the highest numbers of defaulters among those who left school in 2011, according the Education Department.

College Type # of federal student loan defaulters, 2011-14 % of borrowers who defaulted on federal loans due in 2011
1 University of Phoenix For-profit 45,123 19%
2 ITT Technical Institute For-profit 11,260 22%
3 Kaplan University For-profit 10,684 20%
4 DeVry University For-profit 9,081 19%
5 Ivy Tech Community College of Indiana Public community college 7,237 23%

Update: This post has been updated to add more information about schools with the highest default rates and to correct the Department of Education’s policy on loans for schools with high default rates.

MONEY

Student Debt Could Cost Housing Market $83B This Year

It might as well be a curse word for young adults. Student loans are now blamed for what would be a staggering, industry-shaking drop in home sales.

TIME 2016 Election

Elizabeth Warren and Suze Orman Call for Student Debt Reform

Democratic Senators Discuss College Affordability
U.S. Sen. Elizabeth Warren (D-MA) (2nd L) speaks as Senate Majority Whip Sen. Richard Durbin (D-IL) (L), and Sen. Patty Murray (D-WA) (R) listen during a news conference June 5, 2014 on Capitol Hill in Washington, D.C. Alex Wong—Getty Images

Warren didn't touch the question of whether she would run in 2016

Correction appended Sept. 17 at 2:40 p.m.

Senator Elizabeth Warren and personal finance expert Suze Orman teamed up Wednesday morning for a spirited, hour-long discussion about student loans, for-profit colleges and the staggering debt crisis facing tens of millions of Americans today.

The two women, who first met at a 2009 TIME 100 event, clearly saw eye-to-eye on nearly every issue, surprising absolutely no one, anywhere. They often echoed one another in their condemnation of “the biggest banks,” “the crooks” selling exploitative student loans, and corporate control over the lawmaking process.

“Washington works for those who have money and power, for those who can hire armies of lobbyists and lawyers,” Warren said.

“Private banks are financially raping—and I use that word truthfully—raping our children,” Orman said. “It’s ludicrous.”

The question of whether Warren will run for president in 2016 was defused right off the bat, when Orman jokingly announced her own candidacy. Warren remained silent on the issue throughout the panel discussion, hosted by Politico and Starbucks in downtown Washington, D.C., choosing instead to draw attention to her student loan reform bill, which was blocked by a Republican filibuster in June.

The bill would require the federal government and private banks to allow the roughly 25 million Americans, each of whom carry an average of $30,000 in student debt, to refinance their student loans at today’s lower interest rates. It would also cap undergraduate loans at interest rates below 4%. The current interest rate for federal Stafford student loans is as high as 8%; private loan rates often top 14%.

Warren and Orman argued that since Americans collectively carry more than $1.2 trillion in student debt alone—a sum that doesn’t take into account mortgages or other personal debt—they cannot buy houses or cars or make other purchases that would stimulate the economy. Senate Republicans blocked another effort to bring the bill to vote on Tuesday. Warren promised Wednesday to “keep hitting at” it this term.

Both Warren and Orman pointed out repeatedly that student loans, unlike any other type of loan, cannot be forgiven under any circumstances, including bankruptcy or death. Those carrying student debt through retirement “will have their social security garnished,” Orman said, as an appalled Warren echoed her: “Your social security check gets garnished!” Americans who die with student loans often pass on that debt to surviving family members.

One of the challenges in passing the student loan reform bill, Warren said, is that the U.S. government mades $66 billion between 2007 and 2012 off of the interest from federally-backed student loans. Her bill would reduce that profit substantially, but proposes making up the difference through a stipulation in the tax code requiring that those making more than a million dollars per year pay taxes at the same rate middle class families pay, she said.

Toward the end of the discussion, the moderators, Politico’s Mike Allen and Maggie Haberman, changed the topic to the upcoming 2014 and 2016 elections. Orman said that while she would vote for Hillary Clinton in 2016, she would much prefer to vote for Warren, who she described as her “political voice.” Warren smiled but didn’t respond.

Allen later asked Warren who her favorite Republican is, to which Warren quickly answered, much to the delight of the crowd, “Living or dead?” When Allen pressed her to come up with her favorite living Republican, Warren suggested Senator Bob Corker (R-Tenn.), who voted to advance debate of the student loan reform bill and is working on housing finance reform.

Allen later asked Warren what her reaction would be if Republicans win the majority in the Senate in November, and Mitch McConnell, who is facing a tight race in Kentucky, succeeds and rises to Senate majority leader. “I’ll be blunt,” Warren said. “I hope that he doesn’t come back.”

In one of the final questions, Haberman asked Warren which Republican she would like to see run in 2016. Warren just laughed. “No,” she said. “No.”

Correction: The original version of this story incorrectly said that Sen. Bob Corker voted for the loan reform bill. He voted to advance debate of the bill.

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