Forever A Loan | Student Loan Crisis

As a college student, you might have considered (or actually gone for) a student loan. Well, you are part of a big chunk of the college-going population in the US. According to the Institute for College Access and Success, as of 2012, 71% of the students graduating from four-year universities had taken some form of a student loan  – this roughly translates into more than 40 million Americans. Taking a deeper look at the numbers, you will see that the student loan debt has increased by 84% since the recession and hit an all-time high of $1.2 trillion, exceeding the credit card debt in 2010. And according to CNN Money, the average balance has also increased.



What is happening in the Student Loan markets?

Average student loan has grown exponentially in the last two decades. Taking a look at the figures from 1993-94, you will discover that almost half of bachelor degree recipients had debt at the time of graduating, and the debt amount averaged a little over $10,000. Fast forward to 2016, and the landscape has changed quite a lot. In this year, more than two-thirds of college students graduated with debt and the average debt was approximately $35,000 – tripling in merely two decades.

But the question arises – why is this happening?

The student loan debt is increasing because government funding has failed to keep up with the ever-increasing cost of higher education. This has resulted in a mass-scale shifting of the burden from the federal government to the state government, and eventually to the families. The government is not doing its fair share in covering college costs and since the family income statistics have not shown much improvement since 2000, students are forced to borrow more to pay for college or enroll in cheaper colleges.  

What Are the Risks Associated with Getting Student Loan?

While the major benefit for incurring this debt is that it will allow you to complete your education, there are a lot of risks associated with the process. The most obvious risk is that you may not complete your college program for which you are taking the loan, due to personal concerns but still have a large amount of debt to your name (with no degree in hand). Another potential risk could be that you finish your degree but are unable to find a job (maybe your degree is not marketable or the economy is down etc), that helps you manage the debt payback process.

Then there is the expected first salary question. For instance, if your average debt amounts to $35,000, then ideally your expected salary from the first job should be at least $40,000. Any amount below this and you literally will not be able to make ends meet.

In addition to these immediate problems that manifest with student loans, there is always a great concern about what it means for the future. More often than not, you will find students with excessive debts saying that it caused delays in other major life events for them – for instance buying a car, a home, getting married or having children. They might also complain about how this debt influenced their employment plans, such as the type of job they wanted to work, the location and the hours etc. All of these factors combined, you will come across a large number of people, who would say that their bachelor level education was just not worth the loan.

How can you stay on Top of the Problem?

The first step in addressing this problem is to know what you are dealing with. Address the following concerns before you apply for a student loan.

What is your planned major?

If you are majoring in science subjects like engineering, math, medicine or computer sciences, chances are that you will be able to pay back the $35,000 debt. But if you are going for an art major, sociology or the humanities, you might find it harder to find a well-paying job after graduation. If you really want to study a major that is hard to monetize, consider doing a double major, with the second major being in a relatively “marketable” field.

Can You Work While In College?

The earlier you start repaying your debt, the better it is for you later on. Make sure you know your university’s policy about working as a student or look for paid summer internships. This would actually be important if you are borrowing a large sum of money.

Are you prepared for additional expenses?

When going to college, your tuition and boarding will not be your only expenses. You will obviously want to go out with friends, go shopping, watch a movie, etc. When making your college budget, always account for these expenses.

Have you considered the case of unemployment?

Having a college degree does not guarantee a job. According to the Economic Policy Institute, around one-third of all college graduates end up getting jobs that don’t even require college degrees. Make sure you have explored the possibility of unemployment and have a back-up plan.

Is your college degree  “worth it”?

College is not just about getting an education for a job. You have to ensure that in the long run, the cost-benefit trade off for your degree is worth it.

Tips:

  • Ideally, you should opt for loan options that do not take more than 10 years to pay off
  • Opt for federal loans as opposed to private loans – they are cheaper and have  better repayment options
  • Compare loan offers from both federal and private entities and make the best decision

Student loan repayment can turn into a nightmare if you do not take care of certain factors. Sure, completing your education seems like the most important thing at the time, but you don’t want to end up deep in debt, 20 years after you finish a college degree that did not even get you job!

 

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