The signs are clear: student loan debt is proving a greater and greater drag on our economy, stymying economic growth. The signs are everywhere: from millions of young Americans choosing to return home to live with parents (foregoing the purchase of real estate), to the rate of delinquency rising 42 percent in less than a decade, it’s clear that student loan debt is becoming an increasingly important factor in our economic recovery. If the U.S. is to avoid the student loan bubble bursting, similar to what occurred within the housing sector four years ago, the time to act is now.

What story do the numbers tell?

According to a study recently released by the Federal Reserve Bank of New York, 37 million people have approximately $1 trillion in federal student loan debt, a record. And that’s not even considering private student Loans held by millions of Americans. In just the first quarter of 2012, federal student loan debt grew by $30 billion, an annual growth rate of about 14 percent. As rates of attendance at colleges and vocational schools (as well as tuitions) rise, so too will student-related debt. Unfortunately, about 27 percent of these loans are delinquent, even though student loan debt cannot be discharged (only forgiven) and borrowers must repay all or a portion of their debt. All of this suggests a dire future, not only for the millions of people who will default on their loans in the next decade, but on a struggling economy in desperate need of strong consumer growth.

Preventing and managing student loan debt

Since 2007, Americans have faced economic hardships not seen since the 1930s, requiring an adjustment in the way we consume goods and think about money. For those in a position to rethink how to pay for college, there are some clear alternatives to going into huge amounts of debt that simply cannot be repaid. These include:

• Attending a community college in order to save money. After a year or two taking basic courses, transfer to a 4-year college or university, and save 40 percent or more on overall tuition costs.

• Seeking scholarships and grants, first, before considering student loans. This may mean participating in extra-curricular activities, becoming a member of local organizations, etc., in order to become eligible for these types of free money.

• Getting a job first, and saving up money to pay for a portion of tuition.

• Living frugally while in college, or graduate/professional school. Just because the government says you qualify for a $30,000 loan each year does not mean it makes good financial sense to accept it.

And for those that may already find themselves suffocating under a mountain of debt they’re struggling to repay, don’t panic just yet. If all or a portion of your debt is subsidized or un-subsidized through the government, and you make too little money to maintain the 10-year repayment plan set by the Department of Education, there are three main options:

• Ask for a forbearance. This will postpone payments, keeping your loans from becoming delinquent, for a set period of time. This is not a long-term solution, because the principle of the loan balance will remain the same, and the interest will compound. Depending on the loan size, a 1-year forbearance could increase the balance substantially, so only use this option if your ability to pay is a short-term problem.

• Ask how to be enrolled in an Income-Based Repayment (IBR) plan. For those with federal student loans, the government offers the income-based repayment option for low-income individuals (or those with disproportionately high loan amounts), which caps monthly repayment amounts at 15 percent of discretionary income. These plans extend the loan term making the overall payment amount larger (due to compounding interest), and adjust yearly, based on income. After 25 years of repayment, the remaining student loan balance is forgiven.

• Take a job in public service. Those with federal student loans who take a public service job, may be able to pay a reduced amount in monthly payments, and have the entirety of their loan forgiven after 10 to 15 years.

Income-based repayment

For most people, the best long-term solution is to consider the income-based repayment option. If your loan is a Stafford, Grad PLUS, Direct Loan, or Federal Family Education Loan, you may be eligible. Under a repayment program like this, your monthly bill will amount to approximately 15 percent of your discretionary income, and is for borrowers with modest incomes. While your monthly payments will be lower, the loan period will be longer, potentially increasing the total amount owed on the original loan. To see whether you might qualify, see the U.S. Department of Education’s Income-Based Repayment Calculator, or call the Department of Education at 1-800-433-3243. And for more information, visit the DOE’s blog post on “Income Based Repayment: Everything You Need to Know.”