The Great Recession drags on into the holidays and more people are joining the Occupy movement. Among the protestors are the underemployed, unemployed, and an increasing number of people who fall into both categories- those with student loan debt. After losing jobs or only being able to secure part-time work, they are forced to choose between living and repaying their loans.
Choosing to pay living expenses means loan payments are sacrificed. This results in compounding interest, which increases debt to unaffordable levels. When some graduates are unable to repay their student loans, they exchange one type of debt for another. Taking out cash advances or payday loans to cover student loan repayments only sinks them further into debt.
Last Week, President Barack Obama announced the fast-tracking of legislation that reportedly reduces annual maximum student loan payments from 15 to ten percent of discretionary income. It also reduces the wait for debt forgiveness to 20 years from 25 and allows recipients of the Federal Family Education Loan Program to consolidate this loan with direct government loans and receive a lower rate of interest.
Under the President’s plan, this legislation will become effective in 2012 rather than 2014 as originally planned. Despite this, people on both sides of the financial relief issue are not pleased. Some feel that students should refuse to repay their educational loans. Others believe that partial or even total debt forgiveness is warranted. This move could improve the credit rating of these individuals, which would increase their spending power.
Opponents say these measures have already had a profound effect on borrower customer service and many people who work for student loan lenders are losing their jobs. Student loan debt has reached staggering proportions, totaling anywhere from $429 to $829 billion. The government could not easily pay a tab this large.
