A college education in the US is expensive. The typical in-state student completing a four-year program at a U.S. university pays an average of $25,487 per academic year, while out-of-state students should spend at least $27,023.
For those who choose to study at a private university, the annual bill can be as high as $53,217. No wonder 79 million Americans took out student loans while in college. For many, a college education is impossible without financial support.
A college degree and the student loans financed by it have long been seen as a surefire route to prosperity. In the decades following the introduction of the federal student loan program, private banks, and later the government itself, lent lavishly, and students were willing to take on large amounts of debt, confident that their investment would pay off. At the same time, universities are raising tuition fees far more than they need to fight inflation. Colleges and banks got rich, and the student loan debt crisis was born.
Today, the debt crisis is in the news, but even considering some form of debt relief, it’s important to remember that even broad relief won’t solve the problem with these loans. Until we find a way to make a college education valuable that translates into easy loan repayments, borrowers should tread carefully. Here are some things to consider when considering applying for student loans.
Student Loan Debt Crisis
Twenty-five percent of Americans owe an average of $37,172, which equates to $1.75 trillion in national student loan debt. By comparison, the standard down payment for a U.S. home is between $10,000 and $15,000. So the average student loan can cover a down payment on two to three properties. Or, considering the typical price of a new car is $47,077, you could probably pay off most of your auto loan debt.
However, while the standard repayment period for private and state student loans is 10 years, most college graduates take about 20 years to pay off their debt. This means you can pay off your student loans in your 40s. A survey found that 12% of student loan borrowers are putting off having a child because of the financial burden of repaying their loans.
Not only can student loans slow people down, they can greatly increase stress levels. Many people struggling with this type of debt experience higher levels of stress, anxiety, and shame. Many people struggling to pay off their student loans come from low-income backgrounds and are members of the black community, and the effects of poverty and racism also weigh heavily, increasing student debt. One in four people have suicidal thoughts due to financial stress.
Should You Take Out Your Student Loan in Full?
There are several important factors you may want to consider before deciding whether to borrow the full amount of your available student loan. Some of these factors are listed below.
Your future job prospects
Is your degree likely to lead to employment or does it require additional training? You should carefully consider the jobs you might get after college based on your academic qualifications. Certain degrees lead to higher paying positions than others, and that should be part of your decision.
What choice do you have
It’s a good idea to research your options before applying for student loans. For example, if you can lower your college costs by working and studying, getting a scholarship, accepting help from your family, or being a local advisor, then you should. Even if you’re still borrowing, they’ll be smaller, making repayments more manageable.
What the final numbers look like
Before applying, it’s best to weigh the pros and cons of private and federal student loans. It can be helpful to use a student loan calculator to determine the final number.
Most online calculators, if you know the loan amount, interest rate and repayment period, can calculate your future monthly payments and the total interest you will have to pay. You can also calculate how much you can save by paying off additional loans. Armed with this information, you can claim a specific amount after determining whether the numbers make sense.
How much do you need
Currently, the maximum federal loan amount you can get is $57,500 for undergraduate students and $138,500 for professional or graduate students. Therefore, total student loans for a four-year degree may be less than you need. In this case, you may have no choice but to borrow available funds and look for other loans to cover your tuition fees.
Student Loan Repayment Tips
It can be helpful to have a plan for repaying your student loans so they don’t drag you down. Below are some options for you to explore.
Early repayment
The longer it takes to pay off the debt, the more interest you will pay. The more interest you pay, the more money you spend in the long run. So maybe you want to turn any extra money you got from a side business, windfall, tax refund, or gift into early repayment. Whenever possible, be sure to pay more than the monthly minimum.
Usually, after the loan is fully paid off, you can start making repayments. So remember to do it as soon as possible, even if you haven’t graduated or are still in grace period. Also, set up automatic repayments so you can take advantage of any discounts your lender offers.
Debt consolidation
If you have different student loans from multiple lenders, consider debt consolidation. If you refinance your debt through consolidation, you can consolidate it into a manageable loan with a lower interest rate.
The new lender will pay off your debt and you can start making new loan repayments to the personal lender. That lender could be a financial institution or even a family member.
Debt consolidation is a great option if you have multiple variable-rate loans and prefer a lower-rate or fixed-rate loan that covers all of your student loans. This strategy is also useful when your repayment period is coming to an end. This gives you a new repayment period, giving you more time to pay off your debt.
You can directly consolidate your loan with zero interest or find another suitable lender to refinance your debt.
Public Service Loan Forgiveness (PSLF)
For those interested in working for a non-profit organization or the U.S. federal, state, local or tribal government, you can participate in the Civil Servant Loan Forgiveness Program.
However, your loan must be a direct loan or consolidated into such a loan. Your balance is forgiven as long as you sign up for a qualifying repayment plan and pay off your loan for at least 120 months.
Loan defaults and bankruptcies will have severe consequences that can last for years. Use these tips to ensure you apply for a manageable loan that fits your budget and lifestyle.
