College graduation season is over. Our nation's leaders have given commencement speeches full of wisdom about obligations to family, community, country and self. But few addressed another kind of obligation likely to shape their audiences' lives for years, even decades to come: the $18 billion in student loan debt carried by the new crop of graduates.
Two-thirds of seniors now have student loan debt when they graduate, most from public universities. Average debt for graduating seniors has climbed by nearly 60 percent in just a decade, after accounting for inflation. On Saturday, interest rates on federal student loans will jump to the highest rate in six years, adding to student debt burdens and prompting many to extend their repayment period to 20 or more years.
To new graduates, I offer two pieces of advice:
First, notify your lenders every time you change your address. It's a simple step that can prevent hefty and rapidly applied late fees as well as far more serious consequences down the line.
Second, if you're having trouble making your loan payments - because of unexpectedly low earnings or a family health crisis, for example - don't ignore the problem. Contact the lenders immediately and ask about your options.
They may offer "forbearance": a temporary period when you don't have to make payments but interest charges keep piling on. It beats defaulting, which wrecks your credit rating and can leave you in deep debt for life.
But before you consider forbearance, ask if you can get interest relief because of "economic hardship" (use those exact words) or unemployment. The process for getting this kind of help is complicated and time-consuming for lenders as well as borrowers, which is why you may have to raise the topic yourself. But the benefits can be significant if you qualify.
The catch? Few graduates who are legitimately struggling to make their next student loan payment qualify for the help they need, when they need it. The rules that are supposed to protect borrowers from punitive repayment requirements are broken. That's why an unprecedented coalition of loan industry, student, parent and higher-education organizations has asked the U.S. Education Department to fix them.
Education Secretary Margaret Spellings has the power to make practical changes immediately to make student debt more manageable despite rising interest rates.
These changes would cap student loan payments at less than 10 percent of income for most graduates and never more than 15 percent. They would reduce red tape by letting borrowers apply for interest relief electronically. They would give responsible borrowers who make regular payments for 20 years the chance to have their remaining debt (usually accumulated interest) canceled.
Student loans help millions of Americans go to college and become part of the educated work force our country needs. The loans allow students to do the right thing: focus on their studies rather than working too much, and complete their degrees on time.
But those same loans can put students and their parents at serious financial risk, because the way the system works now, the payments borrowers are required to make have little or nothing to do with what they and their families can afford.
According to a survey commissioned by our Project on Student Debt, Americans see paying off student loans as a serious problem for both middle-class and low-income families. They believe government should be doing more to help, and they want to make loan payments more manageable. The national survey found that 66 percent say affording college is more difficult now, and 70 percent expect it to be even harder in the future.
One of the best gifts the Bush administration could give America's graduates would be to fix the broken student loan repayment rules so that tomorrow's graduates can look forward to a future that's not defined by student debt.
Robert Shireman is director of the Project on Student Debt in Berkeley, Calif. His e-mail is email@example.com.