The student loan crisis is rooted in unprecedented social and economic complexities. Instead of accepting to pay a long-term price just to obtain a degree, students should seek a different approach to fund their education.
Student Loans: An Unbeatable Crisis (?)
As of December 31, 2020, the average student loan debt was $37,500, as more than half of American students started college with debt on their shoulders. But what makes student loan a crisis, other than the staggering amount? On the one hand, knowing that most repayments will span over decades. On the other, required monthly installments chase you at any point in your career, whether you have a lucrative job or just an hourly side gig.
At present, student debt has reached a nationwide $1.6 trillion, and it is projected to grow by 7% each year, reaching $2 trillion by the end of 2021. One of the worst effects of this debt is that it reduces people’s purchasing power, particularly when it comes to cars, houses, furniture, and even vacations. This is why many economists go even beyond, stating that student loans are not just a college graduate problem, but an issue for the entire nation’s economy.
Although defying the student loan crisis is not a one-person task, each student should adopt a more reflective approach towards their future:
Understand The Loan
Understanding how student loans work is crucial to avoid any future overpayments. For every loan you take, there are three main things to keep in mind: principal, interest rate, and repayment plan. Federal loans are based on a standard 10-year plan unless you have chosen otherwise. If you realize you cannot keep up with your repayment plan, you can change it based on your needs. Bear in mind that although extending your repayment will lower the monthly payments, your interest will increase. For this reason, some borrowers are presented with different loan options such as income-based repayment plans (IDR), which cap monthly payments based on a fixed percentage of income every year.
Study Your Repayment Options
When managing your student loan, keeping track of balance, lender requirements, and repayment status help you stay in control of your expenses and potential repayment options over the months and years. If you are unsure about your loan requirements, you can always ask the lender for more information. For instance, paying more than the required monthly amount will immediately lower the amount of interest over the life of the loan. Just inform the lender to remove the extra payment from the amount owed.
Adopt a Repayment Strategy
Certain college degrees require more money than others, with medical professionals taking on the highest debt. With doctors averaging around $200,000 in loans, many struggle to come up with a repayment strategy that best fits their income and financial needs. To cope with this burden, you may consider paying off high-interest loans first. For instance, private loans tend to have higher interest rates than federal ones, and their repayment options are not as flexible. Therefore, repaying private loans ahead of time can make your future federal payments much easier to handle.
The fallout from the student loan crisis goes far beyond the money repayments – it also depends on the behavior of the students and how they decide to cope with this heavy financial obligation. A great portion of this massive debt comes from students who have been counseled into borrowing large sums of money for their education without understanding its implications.Virtually, there is no “one size fits all” solution to student loans, as each individual’s situation is different, though equally complex. Whenever possible, prospective students should think carefully about whether or not borrowing money is worth their education.