Student Loan Debt: A Looming Crisis
Americans were holding $1.5 trillion in student loan debt as of the 1st quarter of 2018. Economists are predicting that student loan debt will be the next housing mortgage crisis. Compounding the problem is that interest rates on student loans will increase from 4.45% to 5.05% for the 2018-2019 school year (US Department of Education). Rising interest rates will cause total student debt to increase.
Student Loan Debt is Not Just for Millennials
Student loan debt is not a problem only for 20-somethings. According to NerdWallet data, 62.5% of student loan carriers are over the age of 30. This means that a lot of Americans are carrying long-term debt and dealing with the impact of bad credit. Long-term financial goals cannot be met, there is more reliance on credit cards to cover the gaps and increased financial stress. Life goals remain on the back burner and any hopes for savings such as for retirement or emergencies is abandoned when all your money is going toward student loan debt.
How can you Avoid the Student Loan Debt Crisis?
First, as a quick aside. If you are reading this article and have not yet taken on student loans, there is something you can do to avoid this crisis.
- Be very careful with the student loans that you take out.
- Do your research and check out all your options.
- Consider schools that are offering financial aid packages that do not include loans. Look for grants and scholarships.
- Borrow only what you need and don’t use the loans to finance a lifestyle on campus that you could not otherwise afford.
- Empower yourself with knowledge. All student loans are not the same—you have options.
Protect Yourself from Rising Interest Rates
Refinance your student loans to protect yourself against rising interest rates. If you are holding student loans with a variable interest rate, or even if you have a fixed rate you should pursue this option. Combine your federal and private loans into a single private student loan with a lower interest rate. You will lose some of the protections you have with a federal loan, but it will be worth it in the end.
Start paying off your student loans as soon as you can. Even though you have a year from the date of graduation until you must make the first payment, pay sooner. Make getting rid of your student loan debt a priority in your financial plan. If you have flexibility around employment, consider companies that are offering student loan repayment benefits. Or, make this a part of your negotiation when considering a job offer. Be proactive, assertive and confident.
Look for Escape Routes
Look into federal student loan forgiveness programs. They do not apply to everyone, but you should investigate each opportunity. Many require a certain profession or location, but the Department of Education does from time to time open the door to a larger pool of student loan holders. Keep in touch with the Department of Education and student loan venders through your social media channels so you are the first to know about special offers.
Budget and Track Your Money
For older Americans carrying student loan debt, now is the time to take a serious look at your outlays. While you have the advantage of a higher salary, you have the counter-balancing reality of higher bills.
For sure you have a car loan, probably a mortgage, and, from what the data shows, high credit card debt. Medical bills may also play a part in the overall financial picture.
Start to pay attention to where your money is going.
- Do you need to downsize?
- How about those meals out? Maybe eat in more often.
- Buy a good coffee maker and skip the Starbucks.
- Separate out needs from wants.
- Look for a higher paying job.
- Take on a second job i.e., join the gig economy.
Your Credit Score
While you don’t need a good credit score, or a credit score at all, to qualify for a student loan, your credit score will be impacted by your student loan debt. If you are unable to make payments, your credit score will be negatively impacted. If you make your student loan payments, but put everything else on credit cards, your credit score will also be negatively impacted. Maintaining a good credit score is important in so many ways, as we have discussed previously. But, particularly, if you want to refinance your student loan debt, you are going to need a good credit score.
The only way to avoid this is to make your student loan payments on time, minimize your credit card usage and take advantage of every opportunity to build a good credit history. Pay your monthly bills on time, including rent, utilities and any other loans, such as your auto. Don’t be tempted to close your credit card accounts. The result is the opposite of what you might think.
If you have a lot of credit card debt from school expenses or setting up life outside of of school, in addition to your student loan debt you are probably overwhelmed. A credit card consolidation loan may be the answer. All of your credit card debt goes into one automatically paid loan. You just have to focus on your student loan payments and stay out of debt. Your credit score will improve with a consolidation loan because the payments are made on time. The application process for a debt consolidation loan from a p2p vendor is online and easy.
The door to financial freedom is open. Empower yourself and walk through.