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February 2017


Student loans: College, cautions, consequences
Mirkin & Gordon, P.C.


student loan debt

A college education generally leads to greater employment and earnings potential.

However, it comes with a price. In 2001 approximately 70% of college students graduated with student loan debt that, nationally, averaged nearly $30,000 per student. There was between $900 billion and $1 trillion in outstanding student loan debt in 2012.

Although they generally have lower loan limits, federal student loans, which account for almost 80% of all loan debt, offer a number of advantages over private student loans:

  • Fixed interest rates generally ranging from 3.4% to 7.9%
  • Repayment is deferred and interest does not start to accrue until after graduation
  • Interest can often be deducted for income tax purposes
  • Consolidation of multiple loans to afford the borrower a single payment
  • No pre-payment penalties.

There are a number of programs aimed to assist you in repaying your federal student loan debt, including:

  • The American Federation of Teachers has been sponsoring student debt clinics for the past year, and the FA brought AFT Higher Ed staff member Chris Goff to our campus on April 22, 2016, to teach us how to better manage our student loan debt! Visit this AFT Voices on Campus article and let us know if you'd like to learn more!
    Deferment (interest does not accrue) and forbearance (interest continues to accrue) programs for financial hardship, illness and other criteria
  • Loan forgiveness for teachers and public service employees
  • Income-based repayment (15% of discretionary income) and pay as you earn (10% of discretionary income) programs based upon financial hardship.

Repayment, however, is key to avoiding significant financial consequences. A default in repaying student loans can result in:

  • Automatic intercepts of income tax refunds and certain federal benefits such as Social Security and disability
  • Wage garnishment of up to 15%
  • A negative impact on one's credit score which will result in higher credit-based costs such as auto insurance
  • Harassment by credit collectors.

Significantly, there may be consequences to persons other than the borrower. For example, a co-signer (e.g., a parent) will be liable for the loan if the borrower defaults and student loans may be considered marital debt in the event of a divorce, thereby affecting the non-borrower spouse's overall financial settlement/obligation.

Discharge of federal student loans is not common but is available in limited instances such as death or total and permanent disability of the student, if the student is a victim of the 9/11 attacks or bankruptcy (very rare).

Understanding student loans is a daunting task. Under the Benefit Fund's legal plan, a covered member may schedule an appointment with an attorney to discuss available legal measures if confronted with a student loan collection issue. Of course, our attorneys are available for consultation on this subject.