ABCs of Student Loans

You probably have heard that as of July 1st, the interest rate on student loans doubled. They went from 3.4% to 6.8%. Now, that’s a doubling, but it’s not terrible. Remember, that’s only for those new loans, so if you have existing loans you don’t have to worry about it. And, it’s only for federally subsidized loans. So, unsubsidized loans—this doesn’t necessarily apply. This increase is due to that sequester—all those budget cuts—and that automatically came through. Chances are good that Congress will correct this. They are negotiating right now, talking about doing something different. So, stay tuned to all of that.

More importantly, we need to talk about the stats on student loans. Now, 60% of students going to college borrow money, and we have right now 37 million people out there with outstanding loans. That is a lot. The average balance on those loans is $24,301. Students who now take out loans, when they graduate they’re graduating with an average debt of $26,000. That’s a lot to take on when you’re starting a brand new job. Most borrowers are over the age of 30. So, that loan is hanging out there for a long time. In fact, we’re even hearing about people having their Social Security wages garnished to pay for these loans.

We have $85 billion in student loans that is past due. That’s the really scary part. Within the first five years of graduation, two out of every five loans are delinquent, because they’re just starting new jobs, and with all those expenses, it’s very difficult. Even more harrowing is the fact that if you don’t get a degree—so if you take out loans, and you don’t finish out that degree—a third of those borrowers will end up defaulting on their loans.

So, you have to remember that your education is an investment. Research the degree. How plentiful are jobs with that type of degree? What are the average incomes? Can you really pay that loan back? Don’t invest in a degree with a limited return.

Now, remember, those loans don’t kick in until you have graduated for six months. If all else fails, you can consider a deferment. That just gives you a short break from loan repayment, but it’s limited on those deferrals. Be very careful. Make it your last resort.

Think carefully before you take out those loans. We’re not saying to people: Don’t take out a loan for education. But make sure that that degree will return to you.

The numbers are growing dramatically. Part of that is because more people are going to college. They understand that it’s important to get a degree to have a decent job. So more families are anxious to send their children, but fewer families are preparing for that event. It’s never too early. As soon as you bring that baby home from the hospital, sign them up. You’re gonna need it.

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