College may be expensive, but a college degree allows you to recoup your investment by landing a higher-paying job that allows you to pay back your loans in a timely fashion… or does it? The skyrocketing costs of college in recent years, combined with a rough job market, have thrown that basic premise into question.
A recent student loan study conducted by the credit bureau Experian found that the student loan balances of the 13.4% of American consumers with outstanding student loans has increased by more than 149% in the last ten years, with collective student loan debt at nearly $1.4 trillion and the average total student loan balance now at $34,144. That’s in line with other sources of student loan data. Information from Student Loan Hero lists total student loan debt as over $1.45 trillion, spread over approximately 44 million borrowers (roughly $33,000 per borrower).
It’s not just the recent graduates who are struggling. According to the Experian survey, borrowers from Generation X (ages 35-49) are carrying the largest outstanding student loan balance average ($39,802) while their younger counterparts in Generation Y (ages 21-34) have the greatest number of student loans (4.4 loans per borrower).
Experian also found that a troubling 8.9% of consumers have at least one student loan with payments between 90 and 180 days past due, and another 23% are in deferment on all student loans.
Some consumers may not be able to pay, but others may simply be delaying the inevitable. As Millennial Money Expert Stefanie O’Connell explains, “The best thing you can do about tackling your student loan debt is to be proactive… paying it back is not a passive practice.”
Carrying excessive student loan debt can have other short-term consequences – such as harming your credit. The Experian study confirms this, finding that the average VantageScore credit score for those with outstanding student loans is 650, a significant drop from the national average of 675. “Once your credit is hurt, it becomes harder to rent that apartment and get that home or auto loan,” notes O’Connell, calling the effect “a snowball of financial struggle.”
In addition, when you do receive offers, the interest rates are likely to be higher if you have a lower credit score. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
There’s also a longer-term ripple effect in retaining such large amounts of student loan debt. As Jocelyn Paonita, Founder of the Scholarship System, puts it, “College debt has such a crippling impact for the rest of someone’s life because you’re not able to take advantage of opportunities right from the beginning… there’s tons of opportunities as far as building your wealth long-term that you can’t take advantage of if you have these monthly loan payments.”
If you are already struggling with more student loan debt than you can pay, consider the available options through the U.S. Department of Education’s Federal Student Aid website. Details on alternatives such as income-based repayment plans or Direct Consolidation Loans may be found there.
Of course, you must also make a reasonable budget that limits spending – that’s the core of any debt reduction program.
If you’re just embarking on your higher education path, it’s a perfect time to investigate all your scholarship options. Don’t forget lesser-known (and in some cases, downright weird) scholarships – they can add up quickly. Most importantly, choose a university and curriculum that is more likely to provide lifelong value for the money that you spend. General knowledge and broadened perspectives are important, but neither of those will help you pay off a massive student loan debt.
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