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If you were ever wondering about how to deal with student loan debt, then you may want to ask yourself what got us in this situation in the first place? It is only in recent years that this particular debt became a real problem. It is crippling a lot of new graduates for the past few decade or so and it is not getting any better.
It is even believed that new graduates today should expect to continue paying for these loans until they are in their 50s. What happened to the general idea that student loans can be paid off in 10 years? Why should we spend until near retirement to pay back a debt that we clearly did not expect to have that much effect in our lives?
How can student debt be a good debt?
A lot of people have argued that student debt is a good debt. If you did not know, yes, there is such a thing as a good debt. The definition is simple. If the debt will put you in a position wherein you can put money in your pocket, then that is a good debt. But if it only takes away from your pocket without helping you improve your personal financial wealth, then that is a bad debt.
Because student loans give us the chance to earn money by financing our college education, then it should be considered a good debt right? If it will help us pursue a high paying job that will give us 6-figure incomes, how can be think that it is bad? How has it evolved to become a huge student debt problem?
It is true that this type of debt can help you secure white collar jobs that will make your earning chances better than high school graduates. However, you will find that it is still robbing you of a good future. Here are some of the things that student loans are robbing from our young adults.
They are delaying home ownership. A lot of them are forced to delay buying a home because what should have been placed in their savings goes to their student loan payments. They are unable to save up for a downpayment.
They are forced to move back with their parents. At a time when they should be learning financial independence, young adults are financial unable to support themselves and at the same time, pay off their debts.
They are delaying life milestones. A lot of young adults are delaying things like marriage and parenthood because they cannot afford it or they have to concentrate on paying off their debts.
What factors about today’s college loans make it a bad debt?
If you think about it, the whole concept of student loans is not too bad if it can really uplift the lifestyle of new graduates. However, even if these loans have the best intentions, the implementation is all wrong. That is what make things a lot worse that it should be.
There are a couple of factors that led to the present student loan payments that we cannot afford. Among all of these, here are three of the most important in our opinion.
This debt is being advertised as a good debt. In 2012, the student loan debt reached $1 trillion. If you think that it should be enough to scare us into taking in more debt, that is where you are wrong. Incoming college students in the country are closing their eyes about the real scenario because student loans are taught as a good debt. As mentioned, there is some truth to that but the current situation of our new graduates should make you doubt that.
Students sign up for a debt without knowing what they are getting themselves into. We understand that college education is important but we really need to tell students about the repercussions before we let them sign up for it. A lot of new graduates today are saying that they would have made decision differently had they known the real effects of student loans. Of course, they only found out after graduating - when the bills started coming in. By then, it would have been too late.
Loans are still being given despite the high delinquency rate. The current consumer debt statistics show that while mortgage and credit card debt delinquency rates are going down, student loans keep going higher. Although that is evident, these college loans are still being given out! If you know that the current borrowers cannot pay back the debt, why are we still approving student loans without changing anything about the system?
We need to come up with a plan or any system that will give us an idea about the capabilities of a student to pay back the loan. An article written by Brett Nelson and published on Forbes.com suggested that college applicants should present a business plan. This plan will explain how they view their education in relation to the work that it will give them in the future. That should force the student to study the industry they want to enter into and research for themselves the statistics about the income possibilities. It will also help them draft a plan to pay back the loan that they are borrowing. On the side of the lenders, they will be given a preview of how the student intends to finish paying back what they owe.
This suggestion actually makes sense because students have to know what they are up against when they borrow student loans. Here is a video from PBS NewsHour that interviews different people and experts about student loans.
College education is good, student loan debt is bad
In the end, you should know that solving the student loan problem does not necessarily mean we need to stop going to college. Getting a higher education will always be a good. It is the manner by which we choose to be in debt for it that needs to be thought out further.
College Board conducted a study titled Education Pays 2013: The Benefits of Higher Education for Individuals and Society. Basically, it proves that it is necessary for students to pursue education after high school because it gives them a better chance at improving their lives. Here are some of the statistics revealed on CollegeBoard.org.
Earning of a bachelor’s degree holder in 2011 is $56,500. This amount is $21,000 more than the average earnings of a high school graduate.
Only 18% of high school graduates (male) earn the same as one going through a 4 year college course. The rest of the 84% is earning low.
College degree holders experience a faster increase in income than high school graduates.
In 2012, the unemployment rate of college graduates is 7.1% lower than high school graduates.
In another study done and published on PewSocialTrends.org, it is revealed that 4 year college degree holders earn more than 60% compared to high school graduates. Not only that, 21.8% of those living in poverty are high school graduates - a huge difference from the 5.8% of college graduates.
Bottom line is, a college education is necessary but you need to make sure that you can reduce student loan debt by making the right financial choices. Student loans can still be a good debt but you have to make sure to borrow only what you know is enough to keep it from destroying your future. Live frugally if you can and take a part time to help with your expenses. These are only some of the ways you can reduce the chances of a less than ideal financial future.
If you need help with your student loans, National Debt Relief recently launched a program that will help borrowers find a debt relief program for their student debt. They provide a consultation service that will match their specific student loan situation, employment conditions and financial capabilities with the right debt elimination program. They will also help with the paperwork that will allow the borrower to enter into such a program. They will only charge a one time flat fee that will be placed in an escrow account. There will be no maintenance fee or additional charges. They will only withdraw the payment once the borrower is satisfied with the paperwork and the debt relief program that they will be directed to.