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START PLANNING FOR / MY FINANCES
LITTLE KNOWN FACTS ABOUT STUDENT LOAN DEBT, AND FIVE WAYS TO MAKE IT WORK FOR YOU

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A college education continues to be a springboard to enrichment and higher income: 

  • Graduates with bachelor’s degrees continue to earn far more over a lifetime than those who don’t have one.1

  • In 2013, this amounted to 75% higher earnings compared to workers with just a high school degree.2

  • Not only that, but the income gap between college graduates and those without a degree is growing ever wider.3

Financing an education, though, can be challenging. So it’s not surprising that student loans have hit a record high, totaling $1.2 trillion in 2014.4 It’s estimated that 70% of 2013 graduates borrowed money, and the average undergrad who borrows is now graduating with about $30K in debt.5  

Having this debt and not managing it actively could be detrimental to your long-term financial picture and future investments. Currently, 20% of post-college borrowers are in default of their loans.6 To help ensure this doesn’t happen to you, make sure you’re armed with some little-known knowledge about student loan debt:

  • 1

    Most student loan debt can’t be erased by bankruptcy.

    On the plus side, the federal government encourages the pursuit of higher education with federally-guaranteed loans as well as grants and work study programs. On the other side of the equation, the entire loan must be paid back to the US taxpayer – with interest. In the case of student loan debt, forgiveness is difficult to obtain except in very limited circumstances.7

  • 2

    Unpaid student loan debt can be deducted from government checks or future benefits.

    Student loan debt can affect any future checks you might receive from the US government. Unpaid debts will likely be deducted from payments you might normally have expected from tax refunds, disability checks, or social security payments. 

  • 3

    Defaulting is the worst option.

    While it may be tempting to ignore it and hope the debt will disappear, this approach can get you into trouble. After 270 days, an unpaid account becomes delinquent, inviting collection costs and court action.8 In addition to negatively impacting your credit score – which will create a real barrier if you’re hoping to negotiate and lower your interest rate on the student loan ­– you’ll also owe the legal costs. This will increase the debt, and you’ll still have to pay it all back. 

Now that you have the facts, following some simple steps can help to make your student loan debt more manageable:

  • 1

    Learn about the “Pay as You Earn” program. 

    There are multiple government programs set up to ease the payment of student loans. “Pay as You Earn” is specifically designed to help people with lower incomes and those at the beginning of their careers.9 The amount of money you pay back each month is based on a portion of your after-tax income (usually 10-15%) rather than an amount determined beforehand. Best of all, borrowers who work in certain teaching, public service, and nonprofit jobs may be able to apply for loan forgiveness, depending upon the circumstances. Learn more here.

  • 2

    Combine loans.

    Bachelor’s degree recipients typically have 4-12 loans.10 Consolidating your loans at one financial institution can in some instances reduce your interest rates. It can also help to simplify your payments.11

  • 3

    Look at insurance*.

    Consider what could happen to your income in the event of an illness or disability. Guardian offers an add-on feature, called a rider, to our disability income insurance policy that helps cover student loan payments until you’re recovered. Like most insurance, the policy has to be in effect beforehand.

  • 4

    Ask for a postponement.

    Lenders may be willing to postpone your payments. There are two types of postponement: A deferment is a temporary suspension where the interest stops, too. Forbearance, the other kind, suspends your monthly payments, but interest continues to build.12 Both should be treated as last options, because you’re not actually cutting any debt.  

  • 5

    Ask for a longer term.

    While extending the loan will incur more interest over the long run, you could significantly lower your current monthly payments. If that enables you to repay while keeping your credit rating intact, it could be worth investigating.13

A college education continues to be the single most important step toward a more fulfilling way of life, and many people take out loans to reach that higher level of achievement. Just know that how you handle the debt could have a big impact on that glowing future you’re creating. Be armed with facts, keep your eyes on the prize, and do what it takes to make that student loan a wise investment in your own wellbeing.

*The Rider provides coverage for period of ten or fifteen years from the Policy Date. When a qualifying total disability occurs, benefits are only payable during the remaining portion of the ten or fifteen-year term that has not elapsed when the disability begins.

Optional riders are available for an additional premium.

Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, or provided by Guardian. Product provisions and availability may vary by state. 

1-3 Mary Beth Marklein, “College Degree Still Worth the Investment,” USA TODAY, June 24, 2014 

4,6 Kevin Carey, "A Quiet Revolution in Helping Lift the Burden of Student Debt," Jan. 24, 2015

5 Allie Bidwell, “Average Student Loan Debt Approaches $30,000," US News & World Report, Nov.13, 2014

7,9-13  Andriotis, “College Debt: How to Ease the Burden of Loans,” The Wall Street Journal, June 14, 2014

8 Federal Student Aid, Basic Eligibility Criteria