According to thestudy, the average American college student graduates with roughly $23,000 worth of student loan debt. This amount totals nearly $830 billion in student loan debt nationwide. Unfortunately, with credit card debt coming in at around $825 billion, student loan debt seems to have finally surpassed credit card debt in the United States. While this might not seem like bad news, it is for those students already struggling to make ends meet.
Credit card debt and Student loan debt are two different beasts. Should a student fall into a financial crisis where they are unable to repay their debts, they might consider filing for bankruptcy. Unfortunately for them, student loan debt is not wiped clean after filing for Chapter 11, and the government has the right to garnish wages or Social Security payments to reclaim their money.
These scenarios have become more and more popular with the rising costs of college tuition forcing students and parents to take out more and more private loans to cover the costs. Once considered “smart debt”, because students used to money to further their educations, which would eventually land them great jobs with large salaries, student loans are now becoming increasingly burdensome.
High unemployment rates and a poor economy are unfortunately keeping many students out of the workforce and unable to repay their loans back. To combat the possibility of becoming delinquent or defaulting on student loans, students and parents alike should be well educated about their financial situations, loan options, and repayment procedures.
How to Avoid Huge Student Loan Debts?
First, students should exhaust all federal loan options before taking out private loans for college. There are three types of federal loans, Perkins, Plus, and Stafford, and borrowers should read the fine print on each of these options before signing on the dotted line. These loans are more flexible than private loans, and students might be able to negotiate a more appropriate repayment schedule dependent on their financial circumstances.
Also, when taking out private loans, it is important to shop around. Annual percentage rates (APR) can vary among lenders between 5 percent and 19 percent. Also, students should ask if lenders would consider lowering the interest rates after a certain amount of consistent repayments have been made, proving their trustworthiness.
Overall, students should become educated about the loans they borrow for college, and be aware of all repayment guidelines. Becoming delinquent or defaulting on a student loan can have serious consequences on one’s credit score, and subsequent other areas of one’s life.