Managing Student Loans

For the first time on record student loan debt exceeds credit card debt. The pressure to increase the number of students studying ever more costly degree courses is leading to a student loan crisis for many, as young people take on a burden of debt that can effectively be higher than the cost of a home.

Education for the sake of education is an aspiration that in reality few can afford, and unless student loans are specifically taken in pursuit of a career with high earning power the loans can preclude access to homeownership and result in jobs pursued simply to pay off loan debt. There are many career paths that can make student loans a viable option; however these tend to require additional professional post graduate qualifications which can bump the cost of loans up even further.

A study conducted by the National Consumer Law Center raised some interesting points regarding the future of student loans, stating “We cannot say with certainty that the student loan market is headed for the same fate as the subprime mortgage industry, but there are ominous signs.” Their worries included federal as well as private student loans, noting that federal overseers in both the loan and mortgage markets have proved “woefully inadequate.”

A clear distinction should be drawn between funding over priced degree courses that will not result in a salary commensurate with student loan obligations, and degrees which can lead to future prosperity without the graduate being overly burdened with debt. To avoid excessive debt all financial aid offers should be pursued vigorously to reduce the debt burden. The brightest students will be able to access the best colleges that have in some cases ruled out the necessity of student loans so their graduates can pursue professional qualifications without worrying about loan debt.

Federal student loans offer the opportunity for student loan forgiveness if the student tailors their initial career plans to match one of the available programs, and subsequently qualifies as eligible. With careful forethought students can take the opportunity to clear student loan debt relatively quickly which will then allow them to concentrate on other financial obligations such as mortgages.

Typically a mortgage has been the biggest financial commitment a person makes, yet those who opt for private student loans can find the repayment costs can soar far beyond a typical monthly mortgage payment. Just as with mortgages, private student loans are issued on the basis of credit, with those considered a good risk receiving preferential rates.

High student loan debt may well mean that the opportunity to own a home has to be given up as the two concurrent loan repayments would be too unaffordable. Whilst students may not give much thought to their future plans to enter the property market there may well come a time when it is an unachievable aspiration. Long term investment in property can enhance personal wealth, whilst a degree in a subject which fails to offer high salary potential could well prove to be an overpriced luxury.

Rates on private student loans can have a disparity of up to 10 percentage points, and students should really question the sense of taking on a loan with double digit interest rates which they may shoulder for far longer than the term of the original loan. Serious thought should be given to taking on loans unless a repayment plan is mapped out in advance. Mortgage debt can in most instances be erased in the worst case scenario of a home repossession, but student loan debt, both federal and private, is non dischargeable even through personal bankruptcy.

To further consider the long term issues of student loan debt I would highly recommend that potential college students watch the documentary made by Inflation U.S. entitled College Conspiracy which offers some interesting insights.

Link to How to Qualify for loan forgiveness