Jumbo Student Loans Increasing — What Indebted Students Should Do

Jumbo Student Loans Increasing What Indebted Students Should Do
Jumbo debt is usually associated with commercial borrowing along with large residential mortgages — not something that college students normally take on. Until now: Jumbo student loans account for 17 percent of academic debt.

There’s nothing inherently wrong with large student loans, and historically the default rate has been low on such loans. People who borrow large sums of money usually go for advanced degrees that translate into higher salaries.

However, a February 2018 study by the Brookings Institution found that large-balance student loan borrowers have increased dramatically in recent years – and the typical profile for such borrowers has changed.

Large Balance Borrowers Soaring

In 1992, only 2 percent of student loan borrowers owed over $50,000 upon leaving school. In 2014, that number rose to 17 percent. Just over half of total student loan debt is held by this small percentage of large-balance borrowers.

Default rates are low in this group (typically around 4 percent), but the consequences are large. Student loan borrowers with balances over $50,000 account for almost 30 percent of defaulted student loan dollars.

Large-balance borrowers aren’t making much progress on repayment. The median borrower in this group from 2010 owes 5 percent more on their debt than they did after leaving school.

Demographics and Deferments

According to the Brookings study, the change in borrower demographics and the increase in deferments and forbearances are largely to blame.

The share of large-balance borrowers attending for-profit schools – where the eventual salaries are less likely to cover borrowing costs – increased from 2 percent of borrowers entering repayment in 2000 to 15 percent in 2014.

If you are struggling to deal with a jumbo loan, these statistics don’t surprise you. Your greater concern is how to get out of the mess you’re in.

Limited Options

For borrowers with large balances and lower income levels – and no reasonable expectation of an income large enough to cover your debts – the options are limited.

Deferment and forbearance may help in the short term, but they only delay the inevitable.

Bankruptcy is not generally an option for student loans. A sound repayment strategy is the answer.

“If you’re in a tough position income-wise, though, it can make sense to start by getting on income-based repayment if you qualify,” said Miranda Marquit, a money expert with financial education website Student Loan Hero.

She continued, “While it’s not the best long-term strategy, it can at least help you get your feel under you and improve your cash flow while you work on your repayment strategy.”

You’ll need to reassess your budget, cutting spending to bare minimums and reducing other forms of debt.

Create Surplus

Create a monthly surplus and apply that to the student loan with the highest interest rate first. Make sure your student loan servicer is applying any extra payments per your wishes.

“You might actually have to call your servicer and specify that extra payments should go to principal,” Marquit said.

She continued, “Many servicers just apply to the next month’s payment, including next month’s interest. It’s more effective if the entire amount of your extra payment is reducing your principal.”

It’s important to avoid credit card balances during the repayment period. You’re going in the wrong direction if you’re accumulating credit at 16 percent interest or higher to pay off a student loan with a single-digit rate.

Loan Forgiveness Programs

If you have federal student loans, see if you qualify for income-based repayment plans or the Public Service Loan Forgiveness Program (PSLF).

Both programs provide avenues for forgiveness of remaining debt after 25 years of payments – and in the case of PSLF, the forgiven amount isn’t considered to be taxable income.

PSLF requires planning, since you must be working full-time for a qualified employer (government positions at any level along with certain non-profit jobs) and make ten years’ worth of qualifying payments. If you find this path appealing, find a suitable job and apply now.

Can You Refinance?

Refinancing may be an option, but only if you can secure a better rate – and if you are burdened with high student loan debts and are having trouble paying it off, the odds of qualifying for a lower rate than your student loan are grim.

“You need good credit and a solid income to qualify for many refinancing programs. They can be a great tool, but you might not meet the criteria,” ,” Marquit said.

“Instead, it’s important to carefully evaluate your education options before settling on school and then being aggressive in paying off debts when you finish.”

Jumbo debt should only be incurred when you’re likely to have a future jumbo income to pay it off. Make sure that you look at college as a value investment and not just a reason to avoid the real world for several years.

This article was provided by our partners at moneytips.com. Photo ©iStockphoto.com/AldoMurillo

If you enjoy reading our blog posts and would like to try your hand at blogging, click here to get started.

Read More

Join our newsletter

If you like Critical Financial, subscribe and get our latest content via email.

Powered by ConvertKit

Share this post:

Recent Posts

Leave a Comment


May the 4th Be with You: Star Wars Swag on Amazon

May the 4th Be With You: Star Wars Day Swag

It began as the punniest holiday ever but quickly grew into an earnest (if somewhat random) celebration of the long-running (and still... more →
People count the money to buy a house in future success.

Avoiding Mortgage Scams: Don’t Fall for Unreasonable Promises

If it sounds too good to be true, it probably is. That’s sound advice for almost all aspects of life, including the search for... more →
Eat for free for a whole month via the meal kit companies discounts for new customers.

How To Get a Month of Free Food: 9 Meal Kit Companies Offering Discounts to New Customers

Play your cards right and you might be able to line up a month’s worth of free meals if you were to try out all nine of the meal... more →
Generate extra cashflow -- here are 97 ways.

96 Awesome Ways to Generate Extra Cashflow

Who doesn’t want more money nowadays? We’ve got you covered on that front. Here comes a long list of different ideas on... more →
Valentine's Day gifts that won't destroy your budget

Valentine’s Day Crafts Are Romantic Rescue from Crazy Inflation

Fall for the hype this week and you’re out an average of $143.56 for Valentine’s Day. Crafts and other do-it-yourself tactics... more →

Ultimate Guide to Bitcoin — FREE Ebook!

Have we got something for you: a free ebook about bitcoin! more →
Get a flu vaccine.

Why You Need To Get a Flu Vaccine Right Now

Flu vaccines aren’t just for the elderly  anymore. Here are 25 reasons you should go get vaccinated. more →
Financially successful

Acquire the Trait All Financially Successful People Have

Financially successful people tend to all have a lot of self-discipline. Improving your discipline in one area of your life often spills... more →

What’s the Best Free Recipe App?

The Apple Store and Google Play together offer more digital cookbooks than you probably have room for on your mobile device. So which... more →
New tax law might slow down housing market.

What Will the New Tax Law Do to the Housing Market?

The new tax law will have a profound impact on the housing market, although in ways that go beyond the deductibility of mortgage interest... more →

4 in 5 Households Will Get a Tax Cut in 2018

Four out of five U.S. households will get a tax cut as a result of the legislation that President Donald Trump signed into law today. more →
Will bitcoin reach $100,000?

When Will Bitcoin Reach $100,000?

Bitcoin has accelerated its pace of appreciation in recent months, and if the current levels between $15,000 and $19,000 make you itch... more →
The Dow Jones topped 24,000 -- now what?

The Dow Jones Crossed the 24,000 Threshold. Now What?

Stocks appear to be increasing in volatility, yet the markets closed on Monday, December 4 with the Dow Jones Industrial Average is... more →
Peer mortgage

Should You Get a Peer-to-Peer Mortgage?

If you can’t get approved for a home loan from a bank, you might want to look into applying for a peer-to-peer mortgage. more →
Investment gifting is awesome.

4 Things To Know Before You Donate an Investment

While donations of any kind are appreciated, gifting investments benefits both the giver and the receiver. Here are four key things... more →
Are you wondering: What's the Relationship Between the Stock Market and Federal Debt?

What’s the Relationship Between the Stock Market and Federal Debt?

Wouldn’t it be wonderful if gains in the stock market could actually reduce U.S. government indebtedness? If that were true,... more →

Family Entertainment: Money-Saving Ideas for Outfitting Everyone in Your Home

Decades ago, the average home hosted one television.  Family members huddled around, debated about programming, and thought nothing... more →