Closing The Financial Literacy Gap To Combat Student Debt
Career College Central summary:
Students are suffering from a lack of financial literacy that leaves them unable to navigate the complex maze of financial aid applications and loan options, further adding to their money troubles even after they leave school.
National student loan debt now tops $1.1 trillion, with the average student accruing more than $26,000 in debt upon graduating. And more than half of this outstanding debt is not being repaid because borrowers are struggling financially. Many have said these statistics are the result of a higher education system that has become increasingly inaccessible and unaffordable. But it also stems from a deeper issue: students don't know what they're getting into when they take out loans, and they don't know what their options are when they have to pay them back.
In his Aug. 22 speech announcing a plan to tie federal financial aid to colleges' performance, President Barack Obama also made a proposal to tackle one aspect of student debt that can start immediately, without congressional approval: he pledged that the Department of Education will reach out to struggling borrowers by encouraging them to enroll in income-based repayment plans. Of the millions of federal loan borrowers currently in repayment, roughly 10 percent are enrolled in one of these plans, according to the Consumer Financial Protection Bureau.
But when students aren't aware of or are confused by different repayment options, those who are struggling financially sometimes just stop paying. After nine months of doing so, they default on their loans, which can affect credit scores, lead to wage garnishments, and if left unresolved for long enough, can even take a bite out of the their Social Security checks.
The Department of Education this week released new data that show the number borrowers who default on their student loans within two years of entering repayment has increased for the sixth year in a row. The Consumer Financial Protection Bureau estimates there are more than 7 million borrowers in default on a federal or private student loan.
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