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Big debt, no job: What's a new grad to do with loan?

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By JENNY DERRINGER

derringer@crescent-news.com

If one defaults on a car loan, say goodbye to the car. If one defaults on a home loan, it could be sold in foreclosure.

So what if a person defaults on a student loan? They can't take back your education -- but you could end up in court.

As new college graduates pour into the job market, they're finding out about the new reality firsthand -- there aren't many jobs out there.

That is evident by the recent unemployment figures released last month by the Ohio Department of Job and Family Services. Williams County posted a July unemployment rate of 17.5 percent, while Defiance and Fulton counties recorded 15.4 and 14.7 percent, respectively.

So what's a graduate to do? It's rather difficult to pay off a student loan without a regular paycheck coming in each week.

The Project on Student Debt website, www.projectonstudentdebt.org, noted that for Ohio, the average debt for a graduate from public and private four-year colleges is $21,950. Broken down by institution, the average debt of 2007 Bowling Green State University graduates is $24,075, and approximately 74 percent of those grads' debt involves student loans.

Ohio State University's 2007 graduates owe an average of $19,900, with 55 percent of them facing student loan debt.

In addition, the Project on Student Debt shows the average debt of 2007 Defiance College graduates at $25,814, with 80 percent of them owing student loans.

Meanwhile, 89 percent of 2007 graduates of Heidelberg College, a private college in Tiffin, owe on average of $30,600.

According to Mike Suzo, vice president for enrollment management at DC, low-interest student loans are a vital part of a typical college student's financial aid package.

"Loans help students and their families finance their part of their education costs," he stated. "About 80 percent of Defiance College students take advantage of federal or private education loans in any given year. Defiance College counsels students to borrow as little in student loans as possible, but not to be afraid to invest strategically in their future."

Suzo noted that the slow economy is a good argument that students invest what is necessary to complete their college education.

"A bachelor's degree makes you more marketable in a competitive environment and dramatically increases your earnings over the course of your working career," he said. "The typical monetary return is many times over the original cost of repaying the loan. Only one-half of 1 percent of Defiance College students eventually default on student loans and most defaulters are students who did not persist to graduation.

"DC's financial aid office ensures that all known gift assistance is applied first to a student's financial aid package before student loan eligibilities are established," he continued. "The college awards more than $6 million of its own funds in gift assistance annually. We also encourage students to seek out local scholarships and grants that can be available through their school and community service-based organizations. Our goal is to make a DC education as affordable as possible."

Suzo stressed that lenders who participate in student loan programs have a vested interest in their repayment and understand the need to work with borrowers confronted with temporary financial challenges.

"Lenders of federally sponsored student loans offer graduated payment plans, deferments and forbearance options during times when incomes are first being established and during periods of non-employment," he added. "Borrowers who need these services should contact their lenders directly for counseling about the best options available to them."

Those who have problems making payments on their loans would be wise to contact their lender to work out an option for repayment.

For the 2008-09 academic year, 58 percent of students at Northwest State Community College, rural Archbold, took out student loans.

Charlotte Sorg, NSCC director of financial aid, pointed out there are those in repayment and new borrowers who are currently enrolled.

"As for the students who are currently in repayment, always keep in contact with your servicer/lender who you are making payments to," said Sorg. "If you cannot make payments, there are federal programs where you are allowed to stop making payments for a period of time. Your servicer/lender wants you to be successful when paying back your student loans and is there to help you. If you stop making payments and do not call your servicer/lender, you risk your loans going into a defaulted status."

Sorg describes the serious consequences of defaulting on a student loan:

-- Your loans may be turned over to a collection agency.

-- You'll be liable for the costs associated with collecting your loan, including court costs and attorney fees.

-- You can be sued for the entire amount of your loan.

-- Your wages may be garnished.

-- Your federal and state income tax refunds may be intercepted.

-- The federal government may withhold part of your Social Security benefit payments.

-- Your defaulted loans will appear on your credit record, making it difficult for you to obtain an auto loan, mortgage, or even credit cards. A bad credit record can also harm your ability to find a job.

-- You won't receive any more federal financial aid until you repay the loan in full or make arrangements to repay what you already owe and make at least six consecutive, on-time monthly payments. (You will also be ineligible for assistance under most federal benefit programs.)

-- You'll be ineligible for deferments.

-- Subsidized interest benefits will be denied.

-- You may not be able to renew a professional license you hold.

-- You may be prohibited from enlisting in the armed forces.

"For those students who are new borrowers and attending school," she explained, "they need to be very conscious of how much money they are borrowing. It is common for students to borrow more money than they really need, then when it comes to repayment they are shocked as to the amount of their loan payment."

But there is help for borrowers.

"A student can request a deferment or forbearance," added Sorg. "These are programs special to federal student loans that were created for those students having a hard time financially. The student must contact their loan servicer/lender to receive proper direction on what program will work best for each specific situation."