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Student Loan Payments Hard to Make Due to Credit Crunch, Job Losses

Francine L. Huff
LoanBiz Columnist

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The credit crunch has hammered the housing market and made it difficult for many people to keep up with credit card payments. The economy's woes--including high unemployment-- are also making it difficult for some people to keep up with student loan payments.

Student Loan Borrowing Doubles

DAVE According to the College Board, total borrowing for education jumped to $85 billion during the 2007-08 school year, from $41 billion a decade earlier. The percentage of private student loans grew from 7% to 23%. Private student loans come with higher interest rates than federal loans, which contribute to high levels of student loan debt.

Will Defaults Rise?

Some lenders are concerned that the number of people defaulting on student loans will increase as the economy worsens. The Wall Street Journal reported that SLM Corp., or Sallie Mae, the No. 1 private student loan company, reported a delinquency rate of 9.4% in September, up from 8.5% a year earlier. Statistics from 2007 showed that 5% of students defaulted on federal student loans within two years of leaving school.

Renegotiating Loan Terms

As a result of the credit crunch, some student loan companies are working with borrowers to renegotiate their loan terms to cut down on the number of defaults. Another option for borrowers with federal student loans is to get a forbearance, which allows them to temporarily postpone or reduce payments. Examples of financial hardship that may qualify for forbearance are unemployment, partial disability, or some other documented hardship.

A student loan deferment allows the borrower to make no payments for a specific period of time. Interest charges on subsidized federal student loans do not accrue during a deferment. Reasons that may qualify a borrower for a deferment are:
  • Returning to school
  • Economic hardship
  • Becoming disabled
  • Family related issues such as maternity leave
  • Entering the military, Peace Corps, or public health service position

Student Loan Consolidation

Some borrowers may qualify for student loan consolidation, which combines multiple student loans into one consolidation loan with one lower monthly payment. Just keep in mind that federal and private student loans can't be consolidated in the same loan.

Sources:
  • MSNBC, Solid financial solutions to ride out tough times, by Jean Chatzky
  • Wall Street Journal, A Bachelor's in Borrowing, by Mary Pilon

About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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