College Debt – Consolidating, Interest-Free and Quick
Total outstanding college debt now stands at about $1.2 trillion dollars. And it’s not just private college debt that is growing, but also federal debts. Federal Student loans are the fastest growing category of consumer debt. With tuition costs steadily rising, many families are turning to government Parent Plus loans to make up the difference. But even without interest-free parent loans, most parents are already strapped for cash, and others already have established themselves for financial failure.
Total outstanding student loans now stands at about $67 billion dollars. That’s a lot of dough. And it’s all being borrowed by students who probably can’t afford to pay back the loans in full. All this is driving up college debt.
So what does this mean for borrowers? Well, the new tax legislation, called the Tax Cuts and Jobs Act, is a major factor. It lowers the average student loan debt that graduates will owe. The standard interest rate for a graduate in this year’s graduates will drop from a current rate of about 3.9 percent to a new rate of about 4.5 percent. In addition, the maximum amount of student loan debt that any one individual can accrue will increase from about $5500 to just under a thousand dollars.
How does all of this affect borrowers? The first-year income threshold that is lowered for most graduates will make paying off student loans a significantly more difficult task. If borrowers have less than a half-time income, they’ll have to pay much higher rates, or perhaps even skip out on paying their debt altogether. Even if borrowers don’t have half-time income, they’ll likely need to pay much higher rates, or perhaps stretch out their repayment periods to compensate. All of this will put an incredible strain on an already overstressed economy.
But the biggest piece of the puzzle is the tax cut. The Tax Cuts and Jobs Act are centered around reducing the rate at which large businesses pay their taxes. If you’re a graduate of one of these colleges and have student loans, your tax bill for the upcoming fiscal year will come in very low, causing your student loan debt to become significantly easier to pay off.
The savings will not be limited to graduate students. While many students worry about the loss of the ability to defer paying their loans while they go to school, students at both public and private colleges will see their savings go even further. At both types of schools, the percentage of students who have parent plus loans will increase. In fact, it’s probably going to go up even more for students transferring into parent PLUS schools.
This is a time when both the federal government and private sector need to work together to help indebted graduates deal with the rising costs of college. Federal student loan servicers are looking to help, as much as possible. And the private sector is looking to help by passing on even more affordable student loan debt relief to the indebted graduates. That’s because too many graduates are simply taking their tuition debt headfirst into adulthood. Rather than working to pay off these massive debts, these young people are choosing to ride out their loans until they’re fully financially settled into the adulthood that they’ve chosen (which may be decades in the future).
And in six months, there’s an opportunity for a big consolidation of the student loan debt relief due to come. Congress is scheduled to finalize the Student Loan Help Act for the upcoming fiscal year, with a trillion dollars set aside to be distributed to all students who qualify, including their parents. Even if this bill doesn’t become law, it’s a good bet that it won’t. That’s because it’ll go so much further in terms of getting the government out of the business of servicing student loan debt.