What exactly does $1.2 trillion in student loan debt look like? Take a look at the map below to get an idea. College students across the nation are carrying the burden of student loans–knowing that eventually, just when they’re struggling to find a job and get on their feet in ‘the real world,’ they’ll be required to repay the debt and interest.
Sound familiar? It probably does. Student loans have become a fact of life for most Americans, and the heavy debt new graduates are saddled with doesn’t bode well for their future or the economy as a whole. We interviewed two student loan debt experts to find out why this type of debt is so oppressive and what can be done to manage it.
The current state of student loan debt
Ja’Net Adams, speaker, author, and personal finance coach at DreamGirl, told us why student loan debt is more problematic than we may realize: “The average student loan debt for the 2015 graduate is $35,000, and that does not include other debt that they may have been carrying–credit cards, car loans, medical debt, etc. The student loan debt alone can keep a graduate from actively participating in life and contributing to the economy.”
Bryce Collins, social media specialist at student loan debt crowdfunding site LoanGifting, has seen it first-hand and agrees: “New graduates with student loan debt are finding it harder and harder to do things like buy a car, own a home, or start a family until much later in life. Graduates with debt also find it more daunting to start a business, and some are even refused employment or raises because their credit is bad due to student loans. As a result of less new businesses, there will be less new jobs as well.”
The effects are far-reaching, even manipulating the housing market, according to Adams.
“Graduates are not buying homes and that impacts multiple industries and generations. Baby boomers who are looking to downsize and want to sell their homes to millennials are finding that the buyers are not there. This causes baby boomers to stay in mortgages as they approach retirement and less income. These graduates who are not buying homes are also not buying furniture, electronics, appliances, alarm systems, etc.”
The burden of debt so soon after graduation is changing the way this generation begins life after college, and the effects can be felt in almost every area of the economy.
How do you manage and pay off student loan debt?
If student loans are a fact of life, then so is the resulting debt. If a student hasn’t managed to land a well-paying job after graduation, suddenly being hit with payments and hefty interest rates that may have accrued while they were in school can be a financial disaster.
Collins says there are a few ways to make sure you stay in control of the amount you owe: “First, give back what you don’t need. There is no sense in paying interest for money that isn’t completely necessary. Another thing to consider is that some loans rack up interest even while you are in school, so waiting until you graduate to start repaying might not be the best idea.”
If you can, begin paying your loans down while still in school to gain an edge and keep yourself from being overwhelmed by interest after graduation.
Adams encourages lifestyle changes after graduation that can help borrowers stay on top of their debt: “Know that you are going to be making more money after you graduate, but the key is to still live like a college student. You have lived like a college student for two to four years. What is a few more years? Imagine that you are making $2500.00 a month, but living off of $1500.00. That’s $1000 a month that can go solely to paying off student loans. In one year, you can pay off $12,000.00!”
Once you’ve racked up student loan debt, you can’t just ignore it. The consequences of defaulting on a loan can be serious and affect many areas of your life. Before it gets to that point, however, borrowers have a few options for dealing with their debt if they can no longer make the payments.
They can look into the government’s loan repayment plans. Income based repayment and Pay As You Earn are two plans that only require 10-15% of your monthly income. These plans give graduates breathing room until they are able to find a career that pays them a decent salary.
They can opt to refinance or consolidate their debt. Refinancing student loan debt enables borrowers to get a lower interest rate on the money they owe. Consolidation allows borrowers to consolidate the different loans they have into one monthly bill. Student loan refinance rates can be as low as 1.90%, which could save borrowers more than $10,000 on their loan. This can also shave years off the time it takes to repay the loan and simplify the process by giving the borrower just one bill to pay each month.
A third option is to have student loans discharged through bankruptcy. This should be a last resort, and even then, it’s rare to succeed with this strategy. Borrowers will have to prove that repaying their student loans would impose a severe financial hardship on them, which can be tough to do. If a student takes this option, they’ll need to factor in the cost of hiring an attorney to represent them, which can be another drawback.
Is going to college worth it?
In the end, does a college degree provide enough value to its’ holder to negate the struggle of living in debt for a while? These two experts think so.
Adams is adamant that debt shouldn’t scare students away from college. “I definitely think that people should go to college, whether it is a two year or four year. The goal is to be responsible in the colleges you choose.
The best advice I ever received from a VP of a Fortune 100 company was “I don’t care where your piece of paper comes from, all I care about is the amount of money you can make me!” The job required a college degree, but his statement made me realize that high school students don’t need to go to $50,000/year colleges to land a great career.
Students need to look for scholarships before and during college. They need to do work study and paid internships to lessen the cost. Lastly, they need to understand what a career from that major is going to pay them. Don’t go into student loan debt of $60,000 and graduate into a career that makes $30,000!”
Collins agrees, adding “If you plan on going $80,000 in debt for a degree in underwater basket weaving, it might be best to consider that student loan debt does not vanish if you declare bankruptcy.”
He says the degree is only part of the reason college is worth it. “In the end, college is what you make it. For a doctor, lawyer, or engineer, there is no getting around the necessity of a college degree. I personally believe college is about much more than just a degree, like personal development, and I wouldn’t trade my college experience for anything.”
What’s your experience with student loan debt? Have you managed to pay off your student loans? We want to hear about it in the comments!
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