Help available to ease financial burden of high college costs

Skyrocketing tuition and cuts in aid for higher education have made affording college today more difficult than decades ago, but there are options that ease the burden on students and their families, officials with several organizations that track college costs and financial aid say.

There also are programs available for students who have already graduated and find themselves drowning in student loan debt. Those depend largely upon what type of loans – federal or private – the student took, however.

Experts in higher education financing agree that students should always seek as much money as possible from federal grants, which do not have to be repaid, and federal loan programs before tapping private lenders.

Private loans have higher interest rates and offer fewer consumer protections for borrowers who get into financial trouble, said Isaac Bowers, an attorney with Equal Justice Works, a non-profit organization that advocates for student loan reform.

In addition to lower interest rates, federal loans, such as the Stafford and Perkins loans, provide more flexible repayment plans, Bowers said.

There also are several programs, including income-based repayment plans and public service loan forgiveness, which are not available for private-loan borrowers.

The income-based repayment plan is a valuable resource to assist eligible borrowers who are having trouble making payments, Bowers said.

The plan limits the monthly payment to a maximum 15 percent of the borrowers’ disposable income. Eligibility is based on a person’s standing in relation to the poverty level for the person’s family size.

Under the public service loan forgiveness program, graduates can get a portion of their loan balance forgiven by the federal government if they take a job in the public service sector, including with government and nonprofit, charitable organizations.

The program requires that the participant remain with the nonprofit for a total of 10 years and to make monthly payments on his or her loans during that time. Once the participants have done that, the balance of the loan will be forgiven.

The program is made even more attractive because the borrower can utilize it in conjunction with the income-based repayment plan, Bowers said. That’s been particularly helpful for students who graduate in fields that typically have high educational costs, such as attorneys and doctors.

While federal loans offer attractive advantages, borrowers should note they also have drawbacks, said Deanne Loonin, an attorney with the National Consumer Law Center.

“Government loans have a lot more options for flexible repayment and deferment rights. But if you get into trouble with a loan, the government can come after you much more aggressively,” she said.

Debt doesn’t disappear

Loonin said one factor students should consider is that, should they default, the government can seek repayment from them any time, even decades later.

“Student loans don’t go away. There is no time limit on when they can come after you. I have clients in their 80s and 90s that they’ve taken a portion of their Social Security,” she said.

Filing for bankruptcy isn’t likely to help with federal or private student loans, which are considered an exception to discharge under bankruptcy laws, she said.

There are instances where student loans can be discharged, but that requires the borrower to prove that repayment of the loans is causing an undue hardship. That standard has not been clearly defined in the law, Loonin said, which leaves the decision up to the individual judge’s discretion.

Given the lifelong consequences, it’s critical that students and their families make informed decisions when deciding what school to attend, Loonin and Bowers said.

“Educational debt has a huge burden on peoples’ life choices – what kind of job they take, whether they can afford to have kids or buy a house,” Bowers said.

‘Net price’ consideration

One of the most important things to consider is the “net price” of attending a particular school, said Matt Reed, program director for the Institute for College Access and Success, a nonprofit research organization that advocates to make college more affordable.

The net price is a calculation that takes into consideration the cost of tuition, fees, living expenses, books, supplies and transportation, minus grants and other gifts that do not need to be repaid. Beginning in October, all colleges will be required to post net cost calculators on their websites, Reed said.

“Right now you don’t know what a particular college is going to cost you until you get a financial aid award letter. Often that comes late in the process when you have to make a decision,” Reed said. “It’s important to do research ahead of time to get the net cost.”