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Student Loan Debt Is A “Ticking Time Bomb”: Here’s How To Deal With Your Bills

Daily Ticker

Zac Bissonnette hates student loans. Good thing the 2011 University of Massachusetts graduate and author of the new book "How to Be Richer, Smarter, and Better Looking Than Your Parents" does not have any, unlike 37 million other Americans. Bissonnette paid for his higher education by working throughout high school and college but acknowledges that many of his friends were not as lucky and will be struggling to pay off their student loan debt well into adulthood.

An investigation by the Associated Press found that more than half of recent college graduates are either unemployed or underemployed, making it that much more difficult to pay off their loans. President Obama visited college students in Colorado, North Carolina and Iowa this week, underscoring the urgency to keep interest rates low for current and future college students.

"At this make-or-break moment for the middle class we've got to make sure you're not saddled with debt before you even get started in life," the president told students at the University of North Carolina at Chapel Hill. Obama shared that he and Michelle paid off their "mountain of [student loan] debt" just eight years ago.

U.S. student loan debt surpassed credit card debt and auto loans for the first time last year and estimates for the total number of outstanding student loans range from $850 billion to $1 trillion. The Federal Reserve Bank of New York projects that at least 37 million Americans, or 15 percent of the population, are actively paying off student debt. About two-thirds of student loans are held by individuals under the age of 30 but the New York Fed has determined that people age 50 and older are carrying as much as $135 billion in student loan balances.

The House will vote Friday on legislation that would keep the interest rate on government subsidized undergraduate student loans at 3.4 percent. The low rate expires after July 1 and will double to 6.8 percent if Congress cannot reach an agreement.

The Obama administration says 7.4 million students currently have subsidized student loans and millions more will be applying for federal aid this year. The White House asserts that a rate increase would add another $1,000 a year to students' debt. The federal government backs about 84 percent of student loans; the average amount owed was $25,250 in 2010 according to the Institute for College Access & Success.

Students and recent college graduates are starting to realize the seriousness of the nation's student loan crisis. Demonstrations took place Wednesday in major U.S. cities to protest what was billed as "One Trillion Dollar Day" - the day when student loan debt was expected to reach $1 trillion.

Bissonnette has written extensively about the escalating cost of college and the 23-year-old rising financial star is on a mission to help his peers tackle their mounting student debt, which he calls "a ticking time bomb."

"My biggest takeaway is if you have private student loans, pay them off as quickly as you possibly can," he says in an interview with The Daily Ticker. "I would throw every nickel I had at the private loans."

Unlike government loans that have a fixed rate, private loans offered by banks are variable and are likely to move higher in the next few years. Bissonnette recommends that recent graduates stick to a 10-year amortization schedule and pay the monthly amount in full. The alternative would be to stretch out the loan repayment process but these lower monthly bills come at a high cost: more interest.

Bissonnette writes in his book that student loan debt does not equal "good debt" and the interest accrued on student loans can be written off as a tax deductible — but not for those making more than $75,000 a year. Bissonnette firmly believes college, despite its skyrocketing costs, will always be a good investment and encourages young people to earnestly think about how they're going to pay for their education.

"Probably 10 percent of borrowers have essentially ruined their lives with student loans," he says.