Student Loan Dodgers

Unfortunately, credit card debt is a reality for most American families. According to the Credit Counseling Service, the average family in 2005 had more than $9,000 in credit card debt, an amount that more than doubled from 1995.

If you’re like most college students, you begin accumulating debt while in school and carry that forward after graduation. It’s of little comfort to say that the best way to avoid debt is not to get into it in the first place, but that’s a little bit of salt that’s worth remembering.

If you have credit card debt, the worst thing you can do is add to it. If you can, commit to putting away your credit cards for one, two or three months. Don’t use them at all, and during that time make a concerted effort to increase your payments. At the end of your “test period” see how much you’ve reduced your debt.

If you can’t go that long without using your credit cards, you’ve got a problem. Either you aren’t making enough to make ends meet, or your spending priorities are out of line with your budget. Take a look at each charge on your credit card statements. Realistically, did you need each item you purchased? An emergency car repair will look a lot different than a new handbag or weight set.

Don’t use your credit card for cash advances. You’ll quickly find out that you don’t need these high-interest loans. Not only do they rack up interest charges from the moment you get the cash, they also prevent your payments from reducing your principal until the cash advance debts are repaid.

Look at the interest rate you’re paying on your balance. Shop around and see if you can find a lower interest rate. Beware of “introductory rate” offers. They can go bad on you quickly if you make a late payment or accumulate additional charges during the grace period.

Ultimately, the only thing that will get you out of debt is responsible management of your money. Generally, if you avoid using your credit cards for purchases you couldn’t make with your cash-on-hand, you can avoid the high-interest revolving debt trap that many individuals and families find themselves in. On the other hand, if you can’t go a month without a “must-have” credit card purchase, you’re putting your financial future at risk. That’s something to think about when you go shopping.

Citigroup, one of the nation’s largest lenders, has cut back dramatically on its participation in the Federal Family Education Loan program (FFELP). Students who had turned to Citigroup to underwrite the Federally guaranteed student loans in the past will need to find a new FFELP lender. The company’s student lending arm, the Student Loan Corp., fired 146 employers and Citibank, another subsidiary, has announced plans to eliminate nearly 30 positions in its student lending department.

Citigroup characterized the move as a demonstration of its ongoing strategic focus on providing the best possible management for the firm during tight economic conditions. Some of the challenges faced by FFELP lenders include substantial cuts in Federal subsidies to lenders who participate in the program. The loss of the subsidies takes on new meaning in light of the collapse of the secondary loan market, which many lenders used to fund their loan-making programs.

The cuts come at a bad time for students who are scrambling to arrange financing for student loans for the Fall semester. To ensure the long-term availability of funds, the Federal government has dusted off a never-used provision of the Higher Education Act, which called upon individual states to provide a “lender of last resort” for student loans. Most states do have higher education loan agencies, but have never participated as a “last-resort lender.”

Most state agencies are also suffering from the same funding problems that have beset FFELP participants. New Federal legislation enables states to find a guaranteed buyer for their college loans in the form of the US Department of Education, but that backing will not take place until the Fall of 2009. In the mean time, many state lenders have also temporarily ceased lending operations, hoping to ride out the latest financial storm.