We’re told over and over again that student loans are good debt. The conventional wisdom says that, like a home loan, student loan debt will turn into an asset. But what happens when it doesn’t turn out that way? What happens when people take on tens of thousands of dollars in loans that may take decades to pay off?

Increasingly, they fall behind on their loans or default. The U.S. Department of Education recently reported that the national default rate on federal student loans rose slightly, to 5.1 percent, in 2004, the latest statistics available, from the previous year’s record low of 4.5 percent. The default rate represents the percentage of borrowers who began repaying their loans between Oct. 1, 2003, and Sept. 30, 2004, and who defaulted before Sept. 30, 2005.

Although the default rate is low compared with the all-time high of 22.4 percent set 14 years ago, the latest increase is still a signal that shouldn’t be ignored. Since the 1990s, the number of students who graduate with more than $25,000 in loan debt has tripled, according to the student Public Interest Research Groups, which along with several state student associations last year launched the Student Debt Alert project.

The rising student loan levels are so troubling, it’s time we stop saying this is good debt.

“Having over $100,000 in student loan debt is not fun,” wrote one reader, a new lawyer who joined me during a recent online discussion. “Do I regret going? No, but it certainly didn’t pan out the way I thought it would. I am working like a fiend, not getting paid what most people think lawyers make, and struggling daily with money and budgeting. There are hundreds, from my class alone, who are in the same boat.”

Sinking in debt, borrowers want to know their options. They look deflated when I tell them: Pay it as originally agreed over 10 years and live below your means, or stretch the payments over as long as 30 years.

And no, bankruptcy is not an option. If you have a federal student loan, it can’t be discharged in bankruptcy. If you have a private student loan, it’s still not a viable option unless you can prove that paying it would result in “undue hardship,” a test that is nearly impossible to meet.

There is some relief, even if temporary. Depending on the loan, there are several options, such as a graduated repayment plan, whereby loan payments start out low and then increase, typically at two-year intervals.

Some loans have an income-contingent option. That gives you the flexibility to pay off the loan based on what you earn. Each year, your monthly payments are calculated based on your adjusted gross income, family size and the total amount of your loans.

If you are experiencing an economic hardship, you may be eligible for “deferment.” Under this option, you still have to pay back the loan, but you can postpone payments for a while. Interest on the loan or loans will not accrue during the deferral period. Another option is “forbearance,” in which you can stop making payments for a set period of time. Unlike with the deferment option, interest continues to accrue. But forbearance is easier to get.

What if you have the cash? Should you pay off your loan? That’s what a number of people wanted to know during the online chat. Take a look:

· “I am a 30-year-old single female, who owns a condo, has no credit card debt, donates to charity, maxes out her 401(k) and has $10,000 in emergency savings and $2,000 in regular savings. I also have $49,000 remaining on my law school loans, which were over $140,000 when I graduated. Should I take $10,000 of my emergency savings and put it toward the loans?”

“I’m about to receive $30,000 of the life insurance money that my father requested I use to pay off the student loans. I have $39,000 in loans with interest rates below 3.5 percent. Should I invest it and pull from what grows to continue to make the regular payments? Or should I just pay off a massive chunk of the student loans?”

· “Would it be more beneficial to take out a student loan to complete my master’s degree, or to take the money from my Vanguard fund? I need around $5,000 for the semester. I’m 24 and have about $10,000.”

As to the first woman’s question, I would not totally deplete my emergency stash of cash, but I would take about half of it and put another dent in that debt.

For the second questioner, should you invest money you inherit or pay down your student loan? Your father did know best. Pay down the debt.

And is it beneficial to take out a loan when you can pay cash for your education? No. It’s only beneficial to the lender.

I think all the questions, on some level, stem from the belief that student loan debt is good debt. It’s not. Debt is bad, even when necessary. Conventional wisdom should follow this old Chinese proverb, “A good debt is not as good as no debt.”

Tags: Bankruptcy, conventional wisdom, default rate, federal student loan, federal student loans, home loan, Lesson for Students, research groups, student associations, student debt, student loan debt, The Best Debt Is None, u s department, u s department of education

If you are having trouble balancing your income and expenditure because of large debts then read on and discover your options in credit card debt consolidation.

Debt consolidation can be an excellent option when you find your finances getting out of control but before you go out and sign up for a debt consolidation loan there are a number of factors you must take into account.

1) Why are you looking to consolidate debt?

The basic principle of debt consolidation is that you take out a single loan and use that loan to repay all your existing credit card debts, loans and overdrafts.

This normally results in lower payments generally spread over a longer term. Before you proceed with debt consolidation you should first consider whether there is a better alternative.

2) Sell assets to clear your debt

Rather than rescheduling your debts see if there is any way you can repay some or all of your debts yourself. Sell unwanted valuables and other items.

Depending on the item you can sell to dealers, advertise in local classified ads or through Ebay. Sell unwanted books through Amazon. If your debts are very high and you own your own home consider downsizing to release equity.

3) Pay more than the minimum off your credit cards.

If you can pay more than the minimum monthly payments you should seriously consider continuing with your existing credit cards and clear the debts over the next 12 to 18 months.

While it may mean restricting your spending in other areas it will be the cheapest option long term. Of course you may still opt for debt consolidation to make managing your debt easier.

4) There are a number of options when considering debt consolidation:

If you are currently only just managing to pay the minimum monthly payments on your credit cards, or your total credit card debt is increasing each month then debt consolidation may be the right choice.

5) A mortgage or re mortgage

If you own your own home the lowest interest rates are obtainable by taking out a new mortgage to pay off your existing mortgage (if any) plus enough funds to repay you other debts.

If repaying your existing mortgage will result in penalty charges consider a 2nd mortgage with your existing lender. The interest charged will probably be slightly but not significantly higher.

6) Take out a secured loan with another lender

If you have already missed or been late with any payments, and as a result your credit score is too low for your mortgagor, consider a secured loan with another lender.

Secured loans in these circumstances are more expensive and the lenders are quick to repossess your home if you miss payments. Only take this route if you are certain that you can make the repayments.

Depending upon how bad your credit history is, so long as you maintain all your payments for the following 1 to 3 years, you can replace this loan with a mortgage or re mortgage once your credit score improves. There will be penalties however if you repay a secured loan early. Ensure you read the fine print.

7) A loan secured on other assets

If you have an expensive car, boat or plane you will probably be able to obtain finance using these assets as security. The rate of interest will be higher than a loan secured on property. If you do not have property or it is fully mortgaged securing a loan on other assets may be an option.

An unsecured loan

If you do not have property or other assets an unsecured loan is often a possibility. An unsecured loan is usually over a shorter term, normally up to a maximum of 7 years but occasionally longer. As a result the monthly payments will be higher but the debt will reduce quickly.

As the lender has no security your property and assets are less at risk if you default. The lender could, however, send in the bailiffs if they obtain a court order.

Because there is no security expect to pay a higher interest rate, particularly if you have a poor credit history.

9) Don’t forget the credit card option.

If your debts are relatively low and you still have a reasonable credit history applying for another card with a 0% or low interest balance could be an alternative to a debt consolidation loan.

Go for a 0% balance transfer if you can realistically repay all or most of the debts in the 0% balance transfer period. If however, there will still be a substantial debt at the end of the balance transfer period go for a permanently low interest rate.

Be aware there may be a 2 – 3% charge on the balance transfer. To ensure you don’t slip back into debt cut up all your credit cards and close paid off accounts.

10) Check all the options before making a decision.

As you research all the options it will quickly become clear if there is one obvious solution. For many individuals there will be more that one option so it is essential check them all out before makuing a final decision. Go to a range of different lenders and mortgage or loan brokers and obtain the best package for you. Remember you have the final say and just enquiring does not commit you to any course of action.

For a great many people debt consolidation provides an ideal solution to excessive credit card debt. Sorting out debt problems takes a little time, effort and determination. Once you’ve sorted your debts you will find life more enjoyable and relaxing and, with no debt collectors calling or contacting you by post or phone, much less stressful.

Tags: credit card, credit card debt, Debt Consolidation, mortgage, Successful Debt Consolidation, unsecured loan