Are you scraping by, just barely able to make your student loan payments? Or maybe you’re making the payments, but worried you’ll be in debt forever? Make sure you haven’t overlooked one of the best repayment options out there. Lauren Asher, an expert on student loans and the president of The Institute for College Access & Success, an independent non-profit organization that works to make higher education more available and more affordable for people of all backgrounds, calls it the “best kept secret” in the student loan world.

Okay, so maybe it’s not totally a secret, but many eligible borrowers aren’t taking advantage of the Income-Based Repayment program, so it deserves all the attention it can get.

I recently interviewed Asher on my radio show, Talk Credit Radio. Here is an edited excerpt from that interview:

Gerri: Can we start off by discussing the trends in student loan debt?

Lauren: Student loan debt is touching more and more people’s lives every year. A generation ago, less than half of people who graduated from 4-year colleges had student loans. Now it’s at least two-thirds. And for the class of 2010, which is the most recent data we have, the average debt for those borrowers was more than $25,000.

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Gerri:  What about default and repayment rates? Are people having trouble paying back their student loans?

Lauren: Default rates have gone up recently although they’ve come down from a high a couple of decades ago. They do sometimes reflect changes in the economy. Certainly it’s harder to pay off your student loans when it’s harder to find good-paying jobs. But what’s important to know is not just how much you owe, but what kinds of loans you have that can really affect your options for repayment.

If you have several student loans, there are actually a lot of good ways to keep those payments under control even in tough times. But you need to know what those options are and how they work before you get into real trouble. One of those options is the Income-Based Repayment Program.

Gerri:  Tell us about the IBR program and the benefits.

Lauren: Income-Based Repayment is the best kept secret in this whole student loan debate. It has been around since July 2009. It’s available to students with federal loans. So that includes Stafford loans and Grad Plus as well as federal Consolidation Loans.

If you have direct loans or what was used to be called “guaranteed” or “federal family education program loan,” whether you have had them for many years or just finished school, you can qualify for IBR if you’re earning relatively little compared to what you owe.

[Related Article: Student Loan Default Realities]

A good rule of thumb is, if you owe as much as you earn in a year, you probably qualify. But, there’s a calculator on our site—IBRinfo.org—and also a link to the department site and their calculator to help them figure it out. So the nice thing is that, once you qualify, your payment each year is adjusted based on your earnings and family size.

If you earn less than 150% of the poverty line for your family size, your required payment is zero. You remain in good standing, you’re not delinquent, you’re not in default. And those payments—even if they’re as low as zero—count towards either 25 years of forgiveness, meaning after you’ve made affordable payments for 25 years in IBR if you still owe anything it’s forgiven. Or if you work for a public or non-profit employer and you had a direct loan, you could get forgiveness in as soon as 10 years in IBR.

IBR provides two things. One, it provides you the assurance that your payment will be fair and manageable based on what you actually earn. The other thing it does is give you a light at the end of the tunnel. Repayments will not go on forever.

Even if you hit a patch where you can’t even cover your interest and your IBR payments are very low, eventually if you haven’t been able to pay it all off, it will go away and you can move on with saving for retirement, paying for your kid’s education and the other things you need to do.

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The Best Kept Secret In Student Loans (cont.) »

Image: Katie Tegtmeyer, via Flickr

If you haven’t taken the time to watch President Obama slow jam the news on Late Night from last week, take the time. It was a political masterstroke that so infuriated conservatives (because they’re incapable of approaching that level of coolness), that they actually tried to make being cool, uncool. It, of course, was not that cool.

The slow jam was all about student loans, and though it may have been a big deal for Jimmy Fallon’s ratings, it didn’t really do much to address the breadth of the crisis. A lifetime ago, I proposed something that might actually go someway toward fixing the school financing bubble we all face, though many will view it as even uncooler than the GOP’s attack on coolness. More on that later, but first, let’s take a closer look at the substance of the slow jam.

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The Late Night appearance placed President Obama at the forefront of the student debt crisis. It was arranged so Obama could voice his support for legislation that would keep interest rates for federally subsidized Stafford loans at 3.4 percent. They are set to increase to 6.8 percent on July 1 unless Congress acts. Most politicians think rates should stay low, but they don’t all agree on how to pay for it. Republicans want to use a fund marked for public health. Democrats want to pay for it by eliminating certain subsidies for oil companies and increasing taxes on the wealthy. Either way, it’s a head fake.

Locking the interest rates at 3.4 percent will save the average student a few thousand dollars over the life of the loan, but it will do nothing to solve this nation’s higher education problem where often only the very rich or those willing to take on permanent debt can go to college. So the President can slow jam this all he wants, but even the ghost of Barry White couldn’t make this interest rate deal anything more than lipstick on a pig.

So permit me to slow jam just how badly higher education in America is broken.

Awww yeah. Mmmm.

College in America is insanely expensive. According to data from The College Board, since 1981, tuition at private colleges has nearly tripled and it’s nearly quadrupled at public colleges (in constant, 2011 dollars). In the early ’80s tuition and fees at a private college ran just $10,144. Now it’s $28,500. A public college cost $2,200 and in 2011/12, the average was $8,200. And remember, these are all 2011/12 dollars and none of these figures includes room and board. That means that an education at an ‘elite’ private institution can run a middle class family that doesn’t qualify for aid, close to a quarter of a million dollars. And if the next 30 years is anything like the previous, some of the kids in Sarah Lawrence’s class of 2042 could be saddled with somewhere in the neighborhood of $720,000 in student loan debt.

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Sure, college graduates do earn more than non-college graduates, but consider the costs. There have always been and will always be ebbs and flows in the overall economy and the employment rate. What’s troubling now is the fact that when kids graduate with $100,000 or more in student loan debt, and can’t get a job, they won’t be able to pay back these sizable debts. So, they’ll either default on or defer their student loans, which will cause that debt to sky rocket. Then their credit will take a hit, which, depending on what state they live in, could make it even harder for them to get a job. And even if they do manage to get a job, the mountain of student loan debt they are paying will make it very hard for them to save up enough to buy a house, a car or their own kids’ college tuition, which means that our housing market and economy in general could remain anemic for generations.

Student loans are the roach motel of debt. They are almost never discharged in bankruptcy. Banks and colleges know that repayment of these loans is the third certainty in life—after death and taxes. While there are efforts afoot to reform current bankruptcy law to make student loans dischargeable, lenders aren’t terribly concerned because they have an alternative. According to one report, 90% of student loans have cosigners (i.e., for every kid who escapes the hook, there is a parent dangling on the line).

There will be ripples. Student loans, just like mortgages, are securitized. They are sliced and diced into little pieces and sold off to investors. So, when the great wave of student loan defaults happens (and it will happen), because these loans are securitized we could see ripples throughout the financial system, just as we did when people started defaulting on their mortgages. The difference here is that mortgages are backed by real property—houses—which banks can repossess.  What backs student loans? Smart kids? Underwater parents? We could be looking at a whole lot of money simply evaporating.

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It’s a big mess, and year by year we’re making it worse, but there might be an alternative to this broken system. Since 1969, I have supported the concept of a National Service Corps and said so in a floor speech that I drafted for a certain U.S. Senator I used to work for. The idea was based upon President Kennedy’s Peace Corps and had been proposed at the time by a number of luminaries.

The premise is simple: at age 18, you serve the nation for at least two years. In return, America underwrites your education at a four-year public university or technical school.  Your contribution can be in the form of military service, infrastructure improvement or community building.

This would accomplish a number of things, not the least of which is to provide American students with some real world experiences that would lead to more informed decisions about and a greater appreciation for college and career. It would also give a boost to our economy by nurturing productivity and infrastructure enhancements. And as a bonus, eliminating the all-volunteer Army might help to prevent us from engaging in elective wars.

Next week we’ll take a closer look at how a program like this might be able to work.

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Congresswoman Virginia Foxx’s recent comments about how she has “little tolerance for people who tell me that they graduate with $200,000 of debt or even $80,000 of debt because there’s no reason for that” added fuel to an already raging fire over the affordability of a higher education, and what—if anything—the government should be doing about the roughly one trillion dollars in outstanding student loan debt.

Putting politics aside, is she completely out of touch with the reality of the cost of a higher education today? Or is it possible to graduate debt-free—even if you (or your parents) haven’t socked away enough, or if you don’t earn a coveted free ride to the school of your choice?

I put out a query looking for stories from students or (their) parents who have recently—or will soon—graduate without college debt. I only got three responses, but each shared some common advice that may give prospective students (and their parents) hope that it is possible to earn a four year degree and not owe half your paycheck to student loan lenders when you’re done.

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Drink Less, Work More and Don’t Buy Into Hype

Zac Bissonnette, the author of How to Be Richer, Smarter, and Better Looking Than Your Parents was graduated from the University of Massachusetts Amherst in 2011. He has no student loan debt.

His number one piece of advice? “Don’t fall for all the hype about how it’s so important where you go to school,” he says. “When you look at the real horror stories (about student loan debt) it’s usually people who bought into the scam that one school is better than another.”

“There are two sets of schools you should go to,” he insists. “Either one of the most elite schools in America or your state public school.” The top schools have large endowments and generous financial assistance, he explains, while in-state public schools offer “just about any major you need,” and are affordable. “The average cost is around $250/week including room and board,” he notes.

And stop focusing on the rankings of the “best” schools, which he believes get far too much attention. “Maybe one in five HR people are going to know the rankings of schools. Employers don’t read that. Unless you have kids in college, you don’t read that,” he says.

[Related Article: Romney, Obama Both Support Student Loan Interest Freeze]

Bissonnette also encourages students to work during school. “The average college student is drunk about 15 hours a week,” he says, and he’s not joking. At least some of that time could be spent working. He brushes off the idea that working will hurt a student’s grades. “Students who work more than 40 hours a week graduate on average with the same GPA as those who don’t work at all.”

And there’s another trap he says students should be careful not to fall into. The first year financial aid package may be quite generous, but once a student is enrolled, they’re hooked and each year, costs can go up/financial aid can go down. By the senior year, the student may find himself or herself taking on a lot more debt than planned.

Bissonnette is as blunt as Foxx at times: “There’s a lot of borrowing for college that doesn’t need to be happening,” he insists. But he quickly adds that he does have a lot of sympathy for students with massive student loan balances they have no shot at repaying. He believes it’s a rare 17-year-old student who is prepared to go against the advice of guidance counselors, his or her parents, and everyone else who is saying an education at a particular school is a good investment.

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Compromise—Or Join the Army »

Image: CUNY Academic Commons, via Flickr

Growing up today is tough if you can’t find a job and are saddled with student loan debt. In a recent study from the Pew Research Center, nearly 22% of young adults age 25-34 are living with their parents. That is up from 11% in 1980. Similarly, young people are pushing back other life goals like marriage, buying a home and having children. Is it because young people today are spoiled, lazy or stupid like many of our critics argue? I doubt it. When you look at the numbers, it seems like the reasons young people are delaying adulthood have more to do with the economy and their personal finances, and less to do with their characters.

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Unemployment for Generation Y (a.k.a. Millennials) is higher than the national average. And to get a job, Millennials need a college degree. Unfortunately, the price of tuition at U.S. colleges has increased over 127% since 1980 after adjusting for inflation, and students are footing the bill by taking out excessive amounts of student loans. Late last year, student loan debt passed the $1 trillion mark. That is more than all credit card debt and auto loans combined!

According to the Project on Student Debt, the average student loan debt per borrower is more than $25,000, and nearly 30 percent of all student loans have past-due balances of more than 30 days, according to the Federal Reserve Bank of New York. What does that mean? People can’t afford to repay the money they borrowed to go to school. Some people are starting to ask the question of whether or not student loans may be the source of the next financial crisis in America. It isn’t a crazy thought.

[Related Article: Experts Still Worried About Student Loan Debt]

Last year, student loan default rates were nearly 8.8%. By comparison, the mortgage default rate in America is closer to 2%. The bigger problem is that student loans can’t be discharged in bankruptcy unlike mortgages, credit cards and other types of consumer debt. So if you don’t repay, you are screwed for life. What is the result?

For some, bankruptcy is the only solution, if only to clear their other debts. Additionally, many young people are delaying adulthood by moving back in with their parents, pushing back marriage and waiting until later in life to have kids and buy a home. According to the U.S. Census Bureau, the average age of first marriage has increased by four years since 1980. Similarly, mothers are waiting three years longer to have their first child and young people are waiting until age 31 to buy their first home. While some of these shifts are the result of demographic shifts in our culture, there is plenty of evidence to suggest that young people simply can’t afford the cost of living the American dream.

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Though the nation’s two major political parties have very little they can agree on, it seems that one issue where there’s a bit of common ground, at least among each side’s likely presidential candidates, is in the area of student loans.

Both President Barack Obama and likely Republican nominee Mitt Romney have come out in support of a bill that would freeze the interest rates on federal student loans at their current level, according to a report from the Associated Press. Currently, the interest rates on these loans are set to double from their current level of 3.4 percent to 6.8 percent on July 1, meaning that all loans obtained after that by low- and middle-income undergrads would cost them considerably more to pay off.

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But though Romney’s partymates in the U.S. House of Representatives are emphatic that extending the current lower rates is simply not economically feasible unless lawmakers offset them with cuts in other areas, the former Massachusetts governor believes student loan rates must remain at their current levels, at least for the time being, the report said.

“I support extending the temporary relief on interest rates for students,” he said earlier this week, according to the news agency.

Experts say this may be an effort on Romney’s part to curry favor with younger voters who have largely been vociferous in their support for Obama, the report said. Moves toward the center generally come for most candidates as the political process wears on, but Romney’s new answers stand in stark contrast with those he made in late March, when he attacked Obama on the subject, saying that the president was promising something for free that he could not deliver. However, even at that time, he said he believed it was important for rates to remain low.

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Student loan use has exploded in the last several years, and though federal financing is intended to be a low-cost alternative to private student loans, many students are finding that this type of credit isn’t enough to cover all the costs related to getting a college education. This has led many to tap a mix of both federal and private student loans to make ends meet, and experts caution that the latter type of loan will have different rules and restrictions when it comes to making payments.