Student Loan - Loans and Debt Consolidation

FIVE MYTHS ABOUT STUDENT LOANS

Five myths about student loans

By MARK KANTROWITZ Special to The Washington Post Published: November 28, 2011 Updated: November 28, 2011 - 12:00 AM

Here are five popular myths about student loans:

1. Forgiving student loan debt would help stimulate the economy.

People who want all student loan debt forgiven argue that getting rid of monthly loan payments would lead to increased consumer spending, thereby providing a quick boost to the struggling U.S. economy. However, only about 40 percent of all outstanding student loan debt is actively being repaid. The remaining borrowers are still in school or otherwise not paying their loans back, so they wouldnt immediately benefit from forgiveness.

And aforgiveness stimulus would have a limited impact. According to my calculations, based on data from the Education Departments Direct Loan Program, annual payments and default collections total about 5.6 percent of these outstanding direct loans. If this proportion is similar for other kinds of education debt, then forgiving the nearly $1 trillion in outstanding student debt would inject at most $56 billion per year. Not a paltry sum, but certainly small compared with more significant stimulus efforts.

2. All education debt is good debt.

Certainly, taking out loans to pay for college is an investment in your future and a key to a better-paying job. So its good debt. But too much of a good thing can be bad for you.

A good rule of thumb is ...[more]