The job market of today is very much different than that of our parents generation. Good jobs are fewer and farther between, and an education is required for pretty much any job that one can feasibly make a living from. The need for a college education has continued to increase, but at the same time, federal and state aid to help students get said education have continually been cut. This means that students have become dependent on student loans to finance their educations. And this is coinciding with a massive increase in the cost of obtaining an education. What this means is, that when students graduate from college, they are already mired in an excessive amount of debt that their entry level jobs do not always give them the ability to repay, if lucky enough to even find a job at all.
There are two types of loans, subsidized and unsubsidized. Many have had to begin to rely on both in order to fully finance their education. Subsidized loans are ones where the government pays the interest on your student loan while you are in college, that way you simply owe the principle upon graduation, and interest will begin to accrue after that. With an unsubsidized loan, interest accrues the entire time you are in college, leading to a much higher debt load for students who must use these loans to make ends meet.
The education and student loan dilemma
With college being almost a requirement of obtaining a good job, more and more people are going to college. This increases the pool of qualified candidates and makes the competition for the few good jobs out there pretty stiff. The debts that many incur while in college are quite massive, and the salaries of most entry level jobs, even for those with a college education, do not provide enough to finance one’s own living expenses, as well as manage the huge monthly payment on one’s student loans.
Student loan payments tend to begin six months after graduation, putting the recent graduate under a lot of pressure to find something, anything, before that first bill comes in. Many students are shocked when they see the extent of their debts. Unsubsidized loans often really shock a student, as the amount of interest incurred on these loans during the time they were in school can be a bit shocking.
Not paying these debts can cost big time
It is easy to see how many graduates are simply unable to pay their student loan debts, and this can make them vulnerable to a lifetime of financial problems. Student loan debt is yours for life, not even bankruptcy can eliminate these debts. Those who cannot make the monthly payments are faced with a limited number of options from which to manage these debts.
Consolidating your loans seems like a good idea, as all your loans are lumped together and you are given a longer amount of time to pay your student loans. The problem with this is that you incur a lot more interest over the course of repaying this debt, and you can end up paying almost double the original loan amount in the long-run. Deferments are another option, and while you are given a grace period from payments, interest continues to accrue while you are in deferment.
Defaulting on your loans is failure to make a payment over 270 days. When you default on your loan, not only does this negatively impact your credit score in a negative way – meaning that you will have more trouble and should expect higher interest rates on any loans you many qualify for – but you are no longer under a payment schedule with the student loan issuer. This means that they can come after you for the full cost of the loan, even garnishing your wages and seizing your tax returns to recoup their costs.
While student loans seem like an evil of society, for many, they are a necessary evil that they need to make a better life for themselves and their family. Student loan debt, when carefully monitored, can be managed, and it is vital to your overall financial health that you make sure that you fully understand the terms of your student loan agreement. Knowing the terms of your loan, having an understanding of what your payments are going to be, and being prepared for repayment will put you on track for success.
