College and post-graduate studies are now within reach of a lot more students because they can take out student loans to pay for the cost. This has encouraged a lot of students to heed the advice of grown-ups to pursue a college degree and try to make a better life armed with higher education. But this investment comes with a hefty price for a lot of people.
Student loans is already a $1.3 trillion national debt that is shared by about 40 million borrowers with at least one account on their name. And the students are leaving college with more than just a degree because they walk down that stage with student loans as well with the class of 2014 having an average of $33,000 per borrower.
And as they could later find out, delinquency and default on student loan payments is a real situation a lot of borrowers are going through. It simply means that there are borrowers who are having a hard time meeting their payments on student loans to the point that they are missing nine months of payment on the loan.
Defaulting on student loans can have dire consequences that the student loan borrower will feel right off the bat. For one, if they are employed, the federal government can collect on the payments through wage garnishment. They can also take away any tax refunds due to you especially as it will be coming anytime this February.
How borrowers are affected by student loans
More than the payments, there are a lot more that student loan borrowers go through and experience as they try and repay an amount which they know will take years to pay off. Here are some of them:
- Stress inducer. Bustle.com shares that student loan repayment is one of the top leading causes of stress most especially for young adults. Money is really a stress inducer but for young graduates who are just trying to to get a good start, being in so much debt can put a lot of stress on these people. Stress can lead to other more serious complications such as health reasons. It can aggravate existing conditions or pave the way for new ones to manifest on the borrower.
- Selling their body. Businessinsider.com reports that there is a website that offers students the chance to get older people to give them some sort of allowance in exchange for questionable favors. However which way you look at it, this is not the answer to student loans. Yes, the money will come but at what expense? There are other decent and moral options to pay back student loans.
- Slows down household formation. There are many borrowers that find that their student loan payments are eating up a large portion of their budget that they cannot seem to ut focus on other areas in their life. They are too consumed with repayment on student loans that everything else takes a step back and this is where household formation slows down. It is no secret that getting married is a costly event and one that can change your life forever including your finances. Yes the income doubles but so does the expenses.Even for married couples, they are thinking twice of having kids or adding more kids because of the added expense it brings to their monthly budget.
- It affects relationship with parents. Credit.com talks of one student loan borrower whose relationship with his parents was affected because he asked them to co-sign private loans. He did this every year and every time he went back home with papers for his parents to sign, it seems to separate them even more. The hard part was when he was unable to meet the payments and his parents had to come in and make the payments. Luckily, he found a business venture that deals specifically with student loans and he is able to pay his student loans on his own.
- Less business formation. WSJ.com reports that the percentage of young people who are starting their own businesses are dropping from 6.1% to 3.6%. This means that there are less people who are heeding their entrepreneurial spirit and deciding to forego putting up a business because of other priorities in life where payment on student loans is a prime candidate. It is hard to save up for the capital needed to start the business and even gamble on the volatile income it brings especially in the early stages compared to a steady income from employment.
- Getting a house of their own. Globest.com points out that as millenials are starting to get jobs, they are just starting to save up and having a downpayment for a house is not an amount they have. Add the fact that as student loans take up a big part of the monthly budget, so will a mortgage payment that takes into consideration principal, interest and even escrow that covers taxes and insurance.
Dealing with payments
As you deal with repayment, you are constantly on the lookout for ways to make it as easy as possible. Here are a few ways you can look into to make the payments as effective and efficient as you can make them.
Consolidate student loans. This program helps you combine all your different student loan debts under one account making repayment a little easier to manage. Imagine if you have 12 to 16 different student loan accounts that you have to pay and monitor every month on top of 45 to 50 hour work weeks. This is on top of trying to balance your budget with living expenses and other financial obligations. Being able to combine your student loans into a more manageable debt account makes repayment and monitoring a little easier. The upside to this is that with private student loans, you can even lower down your monthly payment when you consolidate your student loans if your credit score has had a significant improvement from the time you took out the loans. This is because rates and credit scores are inversely proportional with each other. The higher one is, the lower the other one could be.
- Increase income. This is easier said than done but not totally impossible to accomplish. There are a couple of things borrowers can look into such as asking for an increase at work. They often say that if you do not ask, you do not receive but it does not mean that you just walk up the door and ask your boss for one. You need to understand how to back up that request with proof that you are a valuable employee in the company. These could be skills that you have acquired or deals that you have recently closed. Another one is using your hobbies to make extra cash on the side. If you love baking then it is possible to bake some cookies or cupcakes for a weekend market or you can sell them to your friends. The added cash that you get can go into your budget for student loan payments.
- Lower expenses. It pays to monitor your expense side of the budget to see where you are either spending too much on or spending on things that you do not actually need and make tweaks here and there to free up some funds.
Student loans has been and will continue to be a big part of our country’s higher educational system. It is up to the borrower to know as much as they can about student loans to manage their expectations and know how to proceed with the debt.