A survey by the Federal Reserve Bank of New York last year showed that student loan debt is on the rise. Also, the number of students who borrowed money for their higher education has increased rapidly as well. The total amount owed by students is about $1.4 trillion and every second, a student accrues about $2,950 in loan money.
For so many students, graduating from college is not the end of the hurdle. They have a more difficult task ahead which is to offset their loans. It is estimated that the average debt a student owes in 2017 is more than $38,000. In some cases, they also have increasing credit card debt and other loans. Loan repayment is not a herculean task if you do the right things.
Facts Regarding Student Loan
The cost of college fees has been growing rapidly over the past 30 years. In 1980, the average cost of tuition at public colleges was between $2,119 and $2,300. Presently, the cost of tuition fees has increased by 344%. It is currently between $9,400 and $9,500 at public schools. Meanwhile, private schools paid between $9,500 and $10,000 in 1980.
The cost of tuition at private schools has also jumped rapidly by 241%. In 2017, most private schools charged between $32,410 and $35,000. Records have also shown that the price of most commodities has increased by 150%. The price of gasoline has skyrocketed by 200% within this same period.
Most jobs that pay very well require a college degree. As a college graduate, you are likely to earn more than an average high school graduate. On average, a college graduate will earn up to $1.2 million more than a high school graduate through their period of active work.
However, this might not be achieved if you don’t manage your student loan repayment plan properly.
Misconception about Student Loans
The misconception around student loans does not only have to do with repayment but also how to obtain them. Students often rely on their friends for guidance on how to get a student loan. Most times, they end up getting half-baked information that lands them in trouble.
We have listed the most famous misconception so that if you are confronted with any of them, you will know what to do.
- The loans are renewed automatically until you finish your studies. Student loans are for a year and when your family’s financial status improves, your loan awards will too.
- There is no difference between private and federal student loans. Although there some differences, they are basically the same.
- You can declare bankruptcy at any time and your student loan will just disappear.
- There is no harm in obtaining a student loan especially if you get a diploma and a job.
All the assertions above are just misconceptions that most students have about loans. They are false and half-truths that will lead you into eternal indebtedness if you’re not careful. Declaring bankruptcy after obtaining the loan is another popular misconception.
It is in rare and extreme cases that a private and federal loan can be foregone because you are declared bankrupt. The chances of such a thing happening are 0.1%.
Effect of Student Loan on College Graduates
It is estimated that 70% of university graduates are indebted to loan servicers to the tune of $38,000 on the average in 2017. Such debt for a graduate takes time to repay. This will definitely affect your ambitions which may include acquiring a home, car or starting a small business. Some may also suffer delays in getting married, etc.
Studies have also shown that about 63% of graduates owe more than $9,000 while 42% of women owe more than $28,000 last year. Since the collapse of the housing sector in 2009, the number of people who are below 35 years and own a house has dropped by 21.2%.
Student debts have prevented a lot of young people from owning businesses and getting married. The number of women who are unmarried is on the increase. A study released in 2016 showed that about 38% of women born in the 1980s are still unmarried.
However, the interesting thing is that most companies are looking for college graduates. They pay much higher and there are more opportunities out there for you. The startup pay is far higher than a high school graduate’s pay.
What You Should Know
You must file a FAFSA to obtain a student loan. FAFSA stands for “Free Application for Student Aid.” The information provided after filling FAFSA will assist the Department of Education in knowing your financial needs to finish your college degree program.
There is $150 billion in grants, loans, and work-study funds available, according to the U.S. Department of Education. Don’t waste any time, grab a FAFSA form and start filling it out today.
You need to find out some facts before you apply for a loan too. For instance, the cost of a public school vs. a private school, stay at homeschooling, the interest rates of various loans and so on. You will not get any response until you fill out the FAFSA form.
Your interest rates are calculated by dividing the percentage of the unpaid principal on your loan. The average range of interest for parents and students during the 2017 and 2018 academic year is between 3.76% and 3.90% for college students, while college graduates’ interest is between 6.31% and 6.50% (who are making use of Direct Plus Loans).
In case you don’t know, students who have subsidized loans don’t have to pay back interest until 6 months after their graduation, while Direct Loans yield daily interest.
This may sound silly but one way to save money without borrowing in college is to go to school from home. You can also live with a roommate so that you can share the cost of rent. Taking extra classes will help you reduce the number of years that you spend in school as well.