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Student loans set to change as new programs hope to take effect

Sep 22, 2012 Sean Albert

Student debt overshot credit-card debt in 2010 and auto loans in 2011, and with a damaged job market, rising college tuition costs, and more people attending undergraduate institutions, concerns are rising that student debt is here to stay. But the rise of income-based repayment programs and approaching legislations for pay-as-you-earn plans may help pop the debt bubble by loosening payment periods and cutting interest rates. Student debt is rising
According to calculations by Mark Kantrowitz of, student debt is rising by almost $3,000 every second. The Institute for College Access & Success estimates that for the two-thirds of students who graduated in 2010 with loans, the average amount owed was $25,000, up from $23,186 in 2009. Although many debt programs allow students to hold off on paying loans until after graduation, many programs don't, leaving students to deal with negative amortization on rising unpaid interest. Proposed legislations may ease loan payments
With a Presidential Memorandum leading to income-based repayment applications online this month, students now have more options to reduce negative amortization directly with the Department of Education. Even with regional support for higher education hitting its lowest point in 25 years in 2011, and with the number of loans increasing, alternative credit programs such as the approaching pay-as-you-earn plans provide hope to a hopeless population. Short term lending programs can also be appropriate solutions when interest rates on the second loan are lower and more time is allotted for repayment. According to the Department of Education, 11 percent of people aged 50-59 and 4 percent of people aged 60 and up still owe money on college loans, suggesting that even though student debt has made a buzz in recent years, the problem isn't new. U.S. News recommends that students with debt contact their legislators and state representatives to support the Understanding the True Cost of College Act introduced this May. The act would force higher education institutions to provide complete context on financial aid programs up-front as well as online applications. Information such as the costs of room and board, books, supplies and transportation would show up on the first page of the application, providing prospective students with information they can immediately harness for potential debt-management programs. While student debt continues to increase, options are quickly becoming available, via online and government programs, to manage the cost of college. Those interested in affecting change should involve themselves in current legislations that may spin a 360 on the way we deal with college loans.