The Federal Reserve tracks the amount of “nonrevolving” consumer debt in the United States. “Nonrevolving debt” contrasts with “revolving debt,” the difference being that revolving debt represents a set amount of credit that one can borrow in any amount at any time but can still reuse it once it’s paid off. Nonrevolving debt means the loan is paid off in fixed amounts over time and is often referred to as “installment credit.” In other words, revolving debt is mostly credit card debt while nonrevolving debt is any other unsecured credit. One component of nonrevolving debt is education loans, but the Fed doesn’t separate this out for the public, leaving experts to guess at its amount. Estimates vary, but according to an article in USA Today last October, total student debt has already crested the benchmark of $1 trillion. Beginning in 2011, it became common knowledge that student loan debt had exceeded credit card debt. It continues to grow, with many implications.
Primarily, people worry that government subsidized student loans (now the Department of Education directly loans the money itself) and the near non-dischargeability of student debt in bankruptcy thanks to changes in the bankruptcy code in 1998 and 2005 are leading to increasing amounts of student loan debt even though mortgage debt and credit card debt dropped or stabilized after the housing bubble popped. The phrase “student loan bubble” also entered the American lexicon in 2011. Worse, defaults are increasing and the Department of Education doesn’t track their total number.
This is a bad situation, and there are many things New Yorkers can do to avoid education debt. First, make sure that embarking on higher education leads to practical outcomes. Colleges get paid no matter what happens to their students (and drop-outs). There are some ways to reduce the costs: save money before going, choose less prestigious schools that provide scholarships over expensive name brand ones, do not attend a for-profit university, go part time, live with friends and family, work while in school, curb unnecessary expenses, and complete your studies as quickly as possible. Finally, use the Bureau of Labor Statistics Occupational Outlook Handbook to determine if your preferred field is in demand, especially if it’s a professional program.
If you must take out student loans, federal loans provide some advantages, namely that the interest rates are often lower and many of them are eligible for Income-Based Repayment (IBR) or Income Contingent Repayment (ICR) programs. These repayment options prevent student debt from seriously reducing debtors’ living standards. Private loans do not offer these options, as they are certain money losers for lenders. Finally, do not co-sign a loan nor ask a friend or relative to co-sign unless the loan offers easily achieved conditions for releasing the co-signer. Few things are more discouraging than hearing stories about college graduates who die young and leave their co-signatory parents to pay off a large, useless student loan.
If you already have student debt, consulting with an experienced New York bankruptcy attorney can help. A Chapter 7 bankruptcy can free up income for other uses including loan repayment.
For more questions about student loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.
