Student Loan Debt: Your Complete Guide to the Crisis — And Getting in Control

If you ask virtually any millennial about their biggest money woe, odds are they'll point to their student loans. 

"I do feel like I got a little ripped off," said Serena Berry, who graduated from Wesleyan University in 2015 with a double major in Film Studies and Art.

Like many recent graduates, she took out federal student loans to fund her education, to the tune of about $19,000. Now in the real world, Berry's found that most entry-level jobs in her industry are effectively unpaid, she said. So she's now not so sure all the private college luxuries — like fancy gyms and concerts — were worth the financial burden she now faces.

"I sort of feel controlled by my debt," she said. 

She's not alone. The Consumer Financial Protection Bureau estimates that 41 million Americans owe about $1.2 trillion in student loan debt. More alarmingly, more than a quarter of borrowers are delinquent on payments or in default.

How this happened 

Student debt, and the anxiety surrounding it, has climbed steadily since the mid-2000s, largely a consequence of two major events. 

The first was a decision back in 1997 to privatize Sallie Mae, the government agency tasked with issuing and servicing student loans. Before that, those activities were generally handled by bureaucrats. Now, they are handled by for-profit companies who can be much, much more aggressive in trying to get their money back.

The second reason for today's debt crisis goes back to budget cuts made in the wake of the Great Recession, after which many states slashed university systems' funds and raised tuition. Accounting for inflation, the cost of attending an in-state, public university has almost tripled since 1976. 

Why student debt is a special kind of debt 

Student debt is like glitter: Sticky and seemingly impossible to dust off.

The loans can even follow you beyond the grave, and can only be included in bankruptcy proceedings in exceptionally rare circumstances. Medical debt, consumer debt, and even mortgage debt are all easier to discharge. 

The fact that student debt is so hard to get out of theoretically means more lenders are willing to make loans, and that large supply keeps the loans cheaper. But rising college costs and cuts to state budgets offset that benefit by putting more burden on individuals to fund their own educations — often with borrowed cash. 

All this debt has been more than a little bit of a drag on the rest of the economy: One Bankrate survey found that almost half of student-debt holders have put off major life events like getting married and starting a family because of their loans.

How you can get in control

Because the student loan crisis has gotten so bad, there has been a fair bit of political pressure to do something about it. 

Late last year, President Obama rolled out a number of "Pay As You Earn" repayment plans which try to cap your student loan payments at 10% of your income.

If you use the government's calculator and find that you qualify for such programs, you could reduce your payments to virtually nothing if you become unemployed. 

Here are three other key moves you can make to reduce the headaches — and the financial strain — of your student loan debt.

Consolidation

Andy Josuweit graduated with about $70,000 in student debt, and watched with dismay as interest payments ballooned that figure to more than $100,000. Now he's the CEO of Student Loan Hero, a startup that builds tools and calculators to help people in his position. 

One thing a lot of people don't realize is that you take out a new loan every semester, as opposed to every year, and these aren't always to the same companies or providers. At one point, Josuweit had 16 loans being handled by three different servicers. And it can get even more complicated once you graduate.

"There are mergers and acquisitions, or they sell the loan to another servicer. The Department of Education also shifts around contracts based on performance," Josuweit said.

Consolidating your loans simplifies the process. If you have multiple federal loans, then you can apply online to consolidate them in a process that takes about 30 minutes. It won't have any effect on your interest payments, but you'll only be writing one check a month instead of two or three. 

Re-financing

Unlike consolidation, re-financing could actually save you money in the long term — and if you already knew that, you are ahead of the game. Nearly 40% of Americans aren't even aware of this option, according to a recent Student Loan Hero survey.

Re-financing is where you get a bank or other provider to buy out all your debt. You obviously still have to pay them back, but you might be able to negotiate a lower interest rate.

A number of banks specialize in refinancing, and there are a lot of different options. Just make sure to read the fine print before you take the plunge — and make sure the new lender's terms won't lose you important protections.

Deferment or forbearance 

These are "emergency switch" options, essentially a pause button for your student loans while you find a higher-paying job or get your finances on track.

They are similar, but both require an application: You can see on the government's student aid website if you will qualify.

If you are having trouble figuring out whether this move is right for you, contact your college's financial aid office. They can help you understand your options better and apply.

The light at the end of the tunnel 

As bad as the crisis has gotten, younger Americans have cause for optimism.

Democratic Presidential Nominee Hillary Clinton recently rolled out a debt-free higher education plan, which takes cues from senator Bernie Sanders' platform — a signal to many that student loan relief will be a major issue in the general election.

There are also steps you can take as an individual to make your debt less painful.

A key takeaway in my own dealings with student debt is that it can (literally) pay to be proactive: Many indebted millennials don't realize how quickly interest balloons, which is why it is so valuable to put any extra income you can find toward your loan payments — as much and often as possible. 

Like most money solutions, this starts with making a budget. Take a look at your income and expenses, and figure out the absolute maximum amount you can pay each month. Then do it.

Paying off your balance early might even entitle you to a refund. 

What's that?

Earlier this year, a student loan company bought out one of my loans, and it was a really frustrating process. My auto-pay was shut off, and I had to re-enroll on this terrible, dated website. When I finally got logged in, I realized that the remaining balance on that one loan was low enough for me to cover with my Christmas bonus, so decided to just pay it all off at once. 

It wasn't a huge payment, only about $800. But paying it off early actually reduced how much interest I owed — which meant I technically overpaid by about $100.

It wasn't ton of money, but getting that $106 refund check in the mail from my alma mater was a special kind of joy.

Read More