Pursuing higher education is often seen as a gateway to a promising future, offering opportunities for personal growth and career advancement. However, as tuition costs soar, many students and their families turn to student loans to finance their education. Let’s discuss the risks associated with taking out student loans and shed light on the potential consequences that can haunt individuals long after graduation.
Long Term Commitment:
First, student loans must be paid back over time with interest that will accumulate over the life of the loan. This means that students end up paying more than the original loan amount. If you are unable to make your payments, it is possible to default on your student loans, which can severely damage your credit score and have lasting consequences such as difficulty getting approved for other types of loans or even renting an apartment. Hey, you were thinking about converting your minivan into a tiny home anyhow right?
Student loans may also limit your options when it comes to choosing a career path after college. With a mountain of debt, you may feel stuck in a job that pays well initially but doesn’t provide enough fulfilment or future growth potential.
Potential “Ball and Chain”:
Now, let’s get down to the nitty-gritty of your student loan’s long-term financial impact, shall we? Imagine this – you’ve finally graduated, tossed your satin covered cardboard in the air, and you’re ready to dive into the real world. But wait, there’s a hitch. You carry with you a not-so-cute accessory called ‘student loan debt’. This burdensome bracelet is more like a financial ball and chain that can weigh you down for a decade or more!
With the rising cost of everything, paying off your student loan can be a challenge if your first job doesn’t pay what you expected. According to the Federal Reserve Bank, a whopping 43% of college graduates end up in jobs that they believe they are overqualified for. Even with your shiny new degree, you might be earning less than you thought. But hey, who said life was predictable? Keep your chin up, your time will come!
True Costs:
Alright, let’s do a little dance with numbers now, shall we? Let’s imagine you manage to beat the average and graduate in only four years with a chunky $30,000 in debt to cover your educational expenses. Now, if you’ve got a typical 10-year repayment plan with an average interest rate of 5%, you’re not just repaying that $30,000. You’ll be paying an additional $8,184 just in interest bringing the total to $38,184. You’ve been daydreaming about finally affording those avocado toasts and artisanal coffees post-graduation but your student loan has an appetite all it’s own and now you have a second mouth to feed.
You Can Run, but You Can’t Hide:
If you get behind, your loan could be sent to a collection agency, a group of really friendly people dedicated to your happiness and independence. Not so much – they’ll be on your case, asking for immediate repayment of the full loan amount, plus any interest and fees. If you refuse to pay? Well, let’s just say it’s a road you don’t want to travel. Garnished wages and withheld tax refunds are just two of the fabulous prizes you could win. According to the Federal Reserve, as of February 2020, there’s a cool 43 million Americans holding student loan debt. That’s like the entire population of Canada! Now, hold onto your socks, because 11.1% of that debt is 90+ days delinquent or in default. That’s nearly 5 million people playing a not-so-fun game of hide and seek with their student loan payments. Remember folks, the ‘Loan Shark’ is not a friendly species in the financial ocean! And if you’re thinking bankruptcy might be an option of last resort, think again. In 1998, the bankruptcy law was changed so that government-issued or guaranteed student loans could no longer be discharged in bankruptcy unless repaying the loan would create an “undue hardship” on the borrower. Meeting this requirement is similar to winning the lottery.
Avoiding the Risks:
My advice for avoiding the pitfalls of college debt? Have a plan and do the math. There’s no question that for the right profession, college and student loans can pay off in the long run. But, going to college without a clear plan isn’t as effective as it may have been in years past. Research the field you’re interested in to determine (a) what you can expect to earn in the beginning years of your career; and (b) what the current employment/unemployment rate is. Make sure it’s a career that requires a degree and estimate the student loan payments you can expect to pay. This will allow you to determine if you are earning enough to be self sufficient. If you’re not convinced the math works, I’d encourage you to subscribe to skip.college below so you can find the quickest path to freedom and wealth without college debt.