Believe it or not, graduation season is creeping up. And that means it’s the time of year I’m reminded how much I hate what student loans have done to the financial health of our nation’s graduates. Unfortunately, according to the Federal Reserve Bank of New York’s latest report on debt and credit among U.S. households, debt — especially student debt and delinquency levels — continued to grow in 2015.
Mounting Student Loan Debt
Don’t take this post the wrong way; I’m not upset with you. The levels of student loan debt are just spiraling out of control. I feel the need to give a little tough love on this subject, and hopefully it’ll get through to at least one student or parent.
Here are the top 10 things I hate about student loans.
- Students usually don’t know what they’re signing up for. If young people had the knowledge of what their balance will be at the end of their schooling — and how much their monthly payments would be —they probably wouldn’t take out so many loans.
- Students see no other option. Loans are often presented as the ONLY option (other than trust funds and scholarships) to pay for school. Be sure to explore as many avenues as possible regarding your options for scholarship, trust funds, grants and work study programs.
- Student loans are generally not dischargeable in bankruptcy. Most student loans do not go away with bankruptcy and will be with you, badgering and pestering you, until they are paid in full or you die.
- Not all student loans are federally guaranteed. There are lots of private student loans out there targeted at people who need to fill the gap between scholarships, grants and financial aid and your total tuition bill. But these loans often require parents to co-sign and tend to have higher interest rates, depending on your credit score. (You can view your credit scores for free on Credit.com to see where you stand.) Be sure you know what you’re signing up for.
- Student loans can hamstring your financial future for much of your adult life. If you let payments drag on for years, these loans can impact your credit and greatly affect your purchasing power. They can make it harder to buy a home and achieve other financial milestones like saving for retirement.
- Students are having trouble keeping up with loan payments. Student loans that are seriously delinquent, meaning more than 90 days late, grew by 5.16%, just in the fourth quarter of 2015.
- Students continue to get deeper in debt. According to the government report, student loan indebtedness increased in 2015 to $1.23 trillion — a staggering amount that keeps getting bigger.
- Late payments can be devastating to your credit score. Each loan from each semester can be listed separately on your credit report, unless you consolidate. And if you do decide to consolidate, there are plenty of consolidation traps out there. And if you’re late on more than one account, each individual late payment dings your credit score.
- Students have to start repayment just when they’re trying to get started. Not long after you leave school, you’ll be getting huge bills. Federal student loans (and some private student loans) have a six-month grace period after graduation, but then your monthly bills start coming due. How will you pay for them?
- A pricey degree does not guarantee a great career with a fat paycheck.
Diligent Loan Research
Need I say more? Well, I will. Students and parents of college students need to do their homework to understand the full ramifications of student loan debt. Educate yourself on the different payment terms between federally guaranteed and private student loans.
Before taking out loans, estimate your total balance at graduation and use a payment calculator online to see what your payments will be. Can you reasonably expect to afford those payments based on a starting salary (which you also need to research) in your chosen career? And once you do start paying down your loans, know your rights as a borrower and remember there is always room for negotiation. If the answer is no, signing on for the loans may not be your best option. Get real and know your options! Your future self will thank you.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- Understanding Your Debt Collection Rights
- Top 10 Debt Collection Rights