The price of college tuition has been rising dramatically over the past few years. A poor economy has only made the problem worse. Schools are seeing their funding dry up as people have less money to contribute. This causes tuition to rise even faster. Student loans are then made harder to repay due to a lack of available job, making debt help even more difficult to obtain.
Student Loans Create an Undue Hardship on Borrowers
People who have student loans have limited options when it comes to getting debt help. Student loans are not eligible for discharge through bankruptcy. Private student loan lenders rarely agree to settle any outstanding debt, while federal loan payments are based on your income. This makes it highly unlikely the government would agree to settle. Another disadvantage new graduates face is a lack of income. Entry-level positions tend to pay far less than other positions.
High Debt Makes It Hard to Invest in Your Future
New graduates generally cannot afford to purchase new homes or cars because of their debt. The average graduate has $50,000 in student loan debt. Some students have debts as high as $100,000. This number skyrockets because graduate school is included. Money spent on student loan payments could be spent on a mortgage instead. Reduced student spending puts a drag on the economy as a whole.
Credit Card Debt Is Also Rising
Options for getting debt help are hard when you have a lot of debt. Credit card debt can be settled with your creditors with the help of credit and debt counseling. However, is that debt management help really going to provide the relief you need? Settling a $10,000 debt means you have reduced roughly 20 percent of your debt. You still haven’t tackled the monster student loan debt that awaits you. Defaulting on either one of your debts will have severe consequences on your credit score. Those with a low credit score don’t qualify for good rates on loans. This further diminishes spending by new graduates.
Interest Rates May Go Up
Interest rates for federal loans may be increasing if the government doesn’t act soon. The interest rate on a Stafford loan is expected to double after July 1. This means nothing if you have already consolidated your loans. However, this can significantly increase your payment if you are looking to borrow money for this upcoming school year. Students who have not locked in their interest rate may also pay more in the near future. Higher interest rates result in higher payments. Higher payments can result in more delinquencies and defaults.
Higher education costs can put a real strain on young people. Money that goes to paying student loans cannot be saved for the future. Buying a home is nearly impossible when you have to repay a costly student loan. These high payments can result in higher rates of default, which can ruin a credit score. Lower credit scores lead to less lending, severely weakening the economy and making it more difficult for you to receive the debt help you need.