If you are trying to figure out how you can afford to go to college, you are not alone. The cost of a higher education continues to rise, and so do student loans.
Cost Of Student Loans Debt
A milestone was reached in 2011. Now exceeding U.S. credit card debt, total outstanding student loans exceeded $1 trillion.
More important is individual debt. In 2005, average student debt was $17,233. By 2012, average individual debt for student loans climbed to $27,253. Education debt can climb upwards of $200,000 for certain professions, such as advanced degrees in specialized medicine.
Parents are racking it up, too. Since 2006, parent borrowing is up 75%. An average of $34,000 in student loans rises to about $50,000 over a 10-year repayment period.
The student loan situation is unsustainable according to FICO (Fair Isaac Corporation – the group that created the FICO credit score system). Borrowers are in for trouble if wages don’t line up with debt loads.
Student Loans Delinquencies
Delinquencies are rising along with debt. Today, 11.7% of borrowers are reportedly at least 90 days late on payments for their student loans. That’s up from 8.5% in 2005 (still a shocking number).
This 11.7% delinquency rate for student loans surpasses all other types of debt – even credit cards, auto loans and mortgages. A number of experts predict that the next big financial crisis in the U.S. will involve student debt.
We instill in our kids that one cannot truly succeed without a college education. Yet, a college education cannot guarantee a job that pays high enough to repay the student’s debt. One problem is that students don’t receive a financial education. For many young people, their first major financial decision is regarding their student loans. This decision comes when they are to be on their own for the first time in their lives, anxious and excited for their future prospects and the university of their dreams.
Then we dangle low interest and deferment in front of their faces. Who can blame students for taking on more debt than they can comfortably repay from their chosen career? IF they can even get a job in today’s economy.
At that age, it’s easy to ignore the consequences of what can be avoided for four or more years. In February 2013, Wells Fargo surveyed over 1,400 “Millenials” aged 22-32. They said debt from student loans is their biggest financial concern. 42% called it “overwhelming.”
Most students now understand that student loans cannot be discharged even through bankruptcy, but they have no relative experience in the cost of living. After college, young people with high debt burdens often delay life events like buying a new car or home, getting married and having children.
They just didn’t see it coming when they took out those student loans.
Should You Get A Student Loan?
“So tell me what you REALLY think,” you might be saying after reading all this gloom and doom. It’s true … if you can avoid taking out any student loans, the rest of your life will be better for it. For many of us, that is not an option.
Do a reality check. Analyze the facts, then your needs and desires.
1. Consider Community College
Compare the cost and results of starting at a community college. Most community colleges provide a quality education for much less tuition. 18 year olds are anxious to get their own place, but living at home may allow a future free of student loans.
2. In-State Vs Out-Of-State Tuition
Do you really need to attend that Ivy League school or boutique university across the country? Out-of-state tuition is typically double that for residents. This could be increased or offset by housing in each area. Compare tuition, books and living expenses. Weigh against the job prospects you’ll get from each school’s education.
3. Choose Your Profession Wisely
This may be the hardest choice of all. Some students will go for the gold. Others have a burning passion that can’t be replaced by money to enter a particular field.
Bottom line: You must know the cost of obtaining your degree versus your potential income in that profession. Only with this information can you decide what you can afford to pay for your education.
4. Apply For Scholarships And Grants First
Start applying for scholarships right after your junior year of high school. Get as much free money as you can from scholarships and grants. Then compare federal and private student loans and borrow only what you need. Unless you want a private loan, apply for a government Stafford student loan first. The interest rate is lower. The Stafford student loan’s terms and conditions are easier to meet.
5. Private Or Direct Government Student Loans?
As part of sweeping 2010 legislation, the government created the federal direct student loans program [DSLP]. Offering a variety of packages for students and parents, federal student loans are originated by the government and feature fixed interest rates.
Private student loans are credit-based education loans offered by banks and other lenders. These offer a variety of interest rates and repayment schedules. Many banks, such as Chase, are discontinuing their private student loan programs. Fannie Mae will continue to be the primary source for private student loans.
Whether you choose private or government student loans will depend upon your need, your creditworthiness and privacy concerns.
Free Report Explaining Student Loans
Our friends at the Loan & Credit Facts website offer a valuable free report explaining the basics of student loans. They gave permission for our readers to download this report directly, no email opt-in required. Click on the link below to open the .pdf file.
Income Based Repayment Program (IBR)
Since 2009, the federal government instituted the Income Based Repayment Program (IBR). IBR helps to make your federal (not private) student loan payments more manageable by scheduling your maximum payment to your current income. Payment must remain current to be eligible.
IBR Info is an independent, non-profit source of information about the new federal student loans and forgiveness programs.