A lot of people would tell you that student loans affect mortgage loans. This is for the simple reason that the more a person is in debt, the lesser their chance and even their drive to take out a mortgage loan for a house. This is a very valid argument and actually has some merit in being a factor in how mortgage loans are performing with the younger set of consumers especially the ones that are saddled with student loan debt.
At present, the student loan debt has ballooned to about $1.3 trillion according to BuffaloNews.com where majority of which is still made up of federal student loans. Student loans was at an increase even during the Great Recession where all others – mortgage, credit card and auto loan were on a decline because of market uncertainty.
There are over 40 million American consumers who are dealing with at least one outstanding student loan according to CNN.com. That number of borrowers is even bigger than the population of some countries combined. And the number seems to be getting bigger and bigger as time flies by. This is alarming because as new borrowers take on student loan, some older borrowers should be paying off theirs.
But even as the default rate on student loans went down by 1%, there are still a good number of debtors who are struggling with their student loan repayment. Even with the multiple repayment plans in federal student loans, there seems to be a struggle with borrowers meeting their financial obligation with student debt.
Student loan repayment problems
There could be a number of reasons why borrowers would run into repayment problems. According to ED.gov, there are about seven repayment plans for federal student loans to choose from. This includes the default Standard Repayment plan and others where the amount to be paid every month depends on the income of the borrower. With all these options for repayment, why are borrowers having problems with them? Here are a few things to consider.
- Unable to find a job. Having finished higher education is a great advantage in looking for jobs but it is never advertised as an assurance. Indeed there are still some graduates who are finding the job market a little tough to crack. There are grace periods for federal student loans which gives borrowers a few months to look for employment before the bills start to come in. But this is not the case for private student loans. The longer the borrower is out of work, the more student loan repayment becomes a challenge.
- Mismanaged student loan borrowing. This is the result of poor choices made during school. Students needs to have an idea on how much their field of study can fetch them in terms of income in the future. This is then a good basis to manage the amount of student loans that they borrow. A six-digit student loan for a teacher can mean that more than what was needed was borrowed for cost of attendance.
- Lack of budgeting skills. As you start earning and paying bills. it is sometimes just the lack of budgeting skills. It could be that you will be a bit tight with your disposable income but you need to make sure that your loans and debts are first repaid monthly. Not listing down your income and expenses every month is a sure way to blow your money into useless expenses leaving you nothing for the essentials.
- Bad decisions. At times, there are just some borrowers who makes bad decisions that ripple out on to their financial lives especially student loan repayment. Going on a cruise after graduation instead of looking for a job first or charging multiple big ticket items on a credit card because of an assurance of income are just some of the bad decisions that can lead to difficulties in student loan repayment.
Student loans has an effect on mortgage loans
With all these borrowers struggling in meeting their student loan repayment, some are quick to point out that student loans affect mortgage loans. It is easy to see the correlation between the two but some people fail to see beyond the obvious Here are some the reasons why young consumers are preferring to rent rather than get their own place.
- Monthly budget. This is one clear example of how student loans affect mortgage loans. Getting a house is probably one of the biggest and most expensive financial decisions a person will make in their life. As such, the monthly mortgage payment is no joke and could easily shoot up to the top spot in the budget in terms of amount. This is one of the more obvious reasons how student loans affect mortgage loans, the borrower is still making student loan repayments and the budget might not be able to accommodate payments on the two.
- Less expensive to rent. Getting a mortgage loan requires an aspiring homeowner to have an equity on the house. This means that they should put in a downpayment on the property. This could be anywhere between 20% or up. Less than this and the lender would put in an insurance that the homeowner would have to pay which is essentially a protection on the part of the lender in case the borrower defaults on the property. There are also taxes and insurance and other miscellaneous expenses that needs to be budgeted when buying a house. Renting on the other hand takes all these away from the renter and puts it on the shoulders of the landlord. This makes renting less expensive than owning a home.
- Amenities offered in renting a place. There are a lot of consumers who go to the gym for a regular exercise or look for a pool to do some laps.There are also some who prefer the quiet ambience of a park to read their own book or to sneak in a yoga move. Renting gives these amenities that is already within their area.They do not have to go one place for a gym and another for a pool.They do not also have to look for a park just to get some relaxation.
- Flexibility and options. Most young consumers are still figuring out life and this means that they need freedom to make decisions and to make mistakes. Student loans affect mortgage loans but there are some borrowers who prefer renting for the flexibility it offers. Getting a call to report for work in a different state is a quick decision when they are renting versus when they are already making mortgage payments.
Meeting the monthly budget for student loan repayment
This is one of the first challenge a student loan borrower has to consider when faced with a steady income and years of student loan repayment. Here are a few things to look into to help make sure that the student loans are repaid on time every time.
- Do an audit of all your student loans. This is important because you do not want to miss out and overlook any student loans you have taken out while in school. Regardless of how small they are, it can quickly snowball into a massive debt because defaulting on a student loan could add a lot of charges on the account.
- Consolidate your student loans. This is a great program to get a handle on the administrative part of your student loan repayments. You can look into student loan consolidation reviews to help you choose out the best company to work with to help you consolidate your loans.
- Enroll in auto debit program for your repayments. if your lender offers such a program, it is worth exploring because it will not only make your monthly repayments hassle-free, there are some lenders that offers a reduction on the interest rate if the borrower enrolls in the program, This is an incentive given by the lender because they are sure that the payments will come in every month.
It is true that to a an extent, student loans affect mortgage loans. But there are other reasons why some consumers prefer to rent instead of taking out a mortgage and it is not always about the student loans.