The desire for a career with passion and opportunity as well as a higher future earning potential is often the driving force behind attending college for most students. Unfortunately, with the rising costs of colleges far outpacing inflation, the desire to attend school and the often daunting student loan debt associated with college can often turn students off from the idea.
An increasing number of students feel both joy followed by almost immediate overwhelm when they graduate and see their final student loan balance. The difficulty in repaying student loans has become a mounting issue and it is critical to get more proper and upfront information out there about how to best navigate this uncertain situation.
The Cold Hard Facts
According to this article by Student Loan Hero, the total student loan debt is $1.48 trillion. The average monthly payment for student loans is $351. The student loan delinquency rate currently sits at a rate of 11.2%, and that number is expected to keep increasing. In short, a lot of people owe a lot of money, and many of them simply cannot keep up.
The Causes of Student Loan Debt
It would be easy to point the finger at young adults just being irresponsible. However, the answer indeed is not that simple. Many factors have contributed to this national problem. Here are some of the biggest culprits:
- Loans are being made without regard to the creditworthiness of the borrower (how likely is the borrower to get a well-paying job shortly after graduation?
- The rise of for-profit colleges.
- Rising tuition costs.
- The increasing necessity for a Bachelor’s degree to get “in the door” professionally.
- Funding for public education continually gets cut.
- Universities are spending more on administrative salaries and campus amenities.
- Students often misunderstand how loans work.
- Tuition costs tend to rise in direct proportion to the government’s guarantee of student loans.
Solutions to the Student Loan Debt Crisis
Regardless of how former students have gotten into this mess, there is no question that we need a solution. Many experts feel that the government needs to stop granting loans for attending private colleges. Student loans being given for attending for-profit schools accounts for 12% of the higher-education population. For-profit schools take 25% of the federal aid money but are responsible for more than 50% of all defaults. Some ideas for reducing the massive amount of money that is owed include:
- Institute repayment plans based on the income to debt ratio.
- Congress must lower current loan rates and allow students to refinance.
- Congress must put a cap on monthly payment amounts.
- Congress must make income-based repayment automatic.
- The student loan interest deduction needs to be increased.
- Offer incentives to employers who contribute to student loan repayment.
- Understanding how to Repay Your Loan
Although some of the country’s best economic minds are working on tackling the problem of student loan debt, the fact remains that there are millions of people who still need to find a way to pay down their loans every month. For those who still owe tens of thousands of dollars or more, help may not come soon enough.
If you are having trouble repaying your loans, try one of these four strategies:
Refinancing to a lower rate will also lower your monthly payment. Refinancing will also let you consolidate all of your loans, whether they are private or federal so you can have one lower rate. Note you have to have good credit to be eligible for refinancing.
Federal student loan consolidation allows you to consolidate all of your federal loans into a single loan payment. Your new rate will be the weighted average of the interest on the current loans rounded up to the nearest ⅛%. This option will not lower your monthly payments, but it will reduce the number of them.
Income-driven repayment plans are a great way to have payments based on the amount of money you make. Some programs will forgive any balances that remain after 20 or 25 years of payments. One downfall of this option is that the interest still accrues, so you will ultimately pay more money.
You can also consider looking into loan forgiveness programs through Public Service Loan Forgiveness or Teacher Loan Forgiveness. These plans offer loan forgiveness for people who enter careers in public service or education, work at least 30 hours a week and have made a majority of 120 payments on time under an income-driven repayment plan. A word of note: beware of ads or telephone calls for fake student loan forgiveness programs that may, in fact, not exist. These can be dangerous identity theft attempts, so be sure to always independently research and confirm that any program is legitimate prior to proceeding.
It can feel intimidating to navigate not only meeting your current financial commitments, but also ensuring you remain on the best path for your financial future. For more information, or to sit down with an advisor regarding your specific situation, contact us today.