If you think that student loans are affecting only students and new graduates, think again. That is what you may want to think but it is farther from the truth. It is a continuously rising debt that is creating a ripple effect of botched financial opportunities both for the borrower and the economy in general.
The tricky part about this type of debt is the fact that it is being sold as a good debt that everyone is supposed to benefit from. There is some truth to that because pursuing a college degree is effective in raising a person’s earning capabilities. Compared to high school graduates, degree holders have better salaries and opportunities to grow their personal wealth.
But despite that, the rising student debt continue to be a problem because it restricts new graduates in so many ways. More than ever, it is important for you to understand student loans because although it will raise your income possibilities, it can also hold you back to a certain level.
5 different ways that student debt is undermining your future
There are many ways that college loans can undermine your future both on a personal and national level. Before we can discuss the effects that it has on a national economic scale, let us focus on how it affects your own life.
Here are 5 ways that student loans can jeopardize your future.
Reduces your lifetime wealth.
In a study done and published by Demos.org, it is revealed that the average student loan amount of $53,000 can lead to a whopping $208,000 worth of wealth loss. This is true for dual income households who have a 4 year bachelor’s degree. That wealth loss is equivalent to what you could have acquired over a lifetime. That loss could have been invested in a small home that would have earned you a passive income. Or it could have been added to your retirement fund. But because of your student loans, you lost that financial opportunity.
Keeps you from making investments.
Since your income will be tied up to your student loan payments, you will lose a lot of chances to make investments that will help you grow your personal wealth. These can be a house, or even a car. It can even be your retirement fund. If you fail to invest in these things, especially the last one, you are seriously jeopardizing your future. The sad part is, you know that it cannot be helped because defaulting on student loans has serious consequences too.
Hinders your financial independence.
Another way that student loans can endanger your future is to hinder you from being financially independent. There are various stories of new graduates who have opted to stay with their parents so they can cut back on costs. Their intention is to grow their disposable fund so that they can pay more towards their debts. While this will help them pay off their debts, it will keep them from developing as an independent manager of their finances. In some way, they are relying on their parents – even if they are contributing at home. It is still different when you live in your own home and make the major financial decisions around the house.
Delays you from experiencing important milestones.
Yet another delay is in the milestones that you should have been experiencing. While there are some people who really delay things like marriage because they want to concentrate on their careers, that is not entirely the case today. There are a lot of situations wherein the new graduate is forced to delay marriage or even parenthood because of student loans. In a study done by the American Student Assistance and published on ASA.org, 29% of their study participants had to delay marriage. 43% of them also revealed that they have opted not to start a family yet because of this particular debt.
Develops fear in young adults.
The last effect of student loans is instilling the fear of debt in young adults. Whether you like it or not, there are investments like a home loan that will help you acquire assets. But your student loan problems can sometimes instill a fear of debt. While you want to keep your debts manageable, you should realize that debt is okay if it remains under your control. As long as you are getting debt that will put money in your pocket, that is a good debt. You need to keep student loans from instilling unnecessary fear of debt in you.
Effects of college debt to the national economy
While that may seem to be alarming already, we still have some really bad news about student loan debt. Not only will it affect your personal life, it can also affect the national economy in general. Here are three ways that we see it to be destructive.
Student loans are making college education a big turn off. Reports are being published about high school students who have begun to enter the workforce without pursuing a higher education. Some of them have pursued their own businesses. While we applaud their ingenuity, study shows that those with a higher education tend to earn more. And take note that not all of the kids skipping college are pursuing businesses. Some of them are going straight to blue collar jobs. These jobs offer very low salaries that will keep the young adult in poverty.
Student loans that hinder borrowers from purchasing home or cars can affect the respective industries. If the government will not do something about this, the inability of young adults to invest will have an effect on the growth of some business sectors. When one industry fails, you can assume that jobs creation will be affected and households depending on them will suffer. In an economy that is 70% driven by consumer spending, the lack of spending can lead to negative results.
Student loan programs backed by the government spend federal budgets that could have been given to other programs that will develop the nation. The rising student debt problem will force the government to allot a budget to help bail out those who are unable to pay off their own credits. Any increase in the budget that is sent towards the student loan programs will come from anywhere. We have seen how the NASA budget had been cut thus keeping that government agency from sending more crafts to explore the universe. And according to the NYTimes.com, there are plans by the government to cut back on food stamps and medicaid.
All of these are fully or partly caused by student loans. In borrowers do not do something about their own college debt problems, it can lead to a whole lot of crisis in the future.
What can you do to avoid the bad effects of student loans?
Learning how to deal with student loan debt is not as complex as you think. However, you have to realize that it will involve a certain amount of sacrifice. Here are some tips that we have for you.
Practice proper financial management. This includes learning how to save, budget and spend your money wisely. In the end, you will realize that debt is not really the problem. It is how we decide to use our finances and react to our debt that puts us in trouble.
Keep a tight rein on other debt types. We are actually talking about credit card debt here. Make sure that you keep this debt low so that it will not jeopardize the payments you are making towards your student loans.
Know your options. You also have to know your options when it comes to getting out of your student debt. There are programs that can help you lower your payments while maximizing the reduction on your principal debt.
Get professional help. Lastly, you may want to consider getting professional help. Some people can afford to pay their debts but their lack of knowledge hinders them from making progressive payments towards it. This is where a professional can be of assistance.
National Debt Relief recently released a new program that target consumers who are struggling with student loans. They have trained debt experts that are specifically versed on how to solve student debt problems. These experts provide consultation services that can help point the consumer towards the right direction. Apart from the consultation, they can also help with the documentation that is oftentimes quite confusing. This service has a one time, flat fee in an escrow account that will only be released if the client approves of the paperwork that the company will help them with. There is no maintenance fee or any other charges. The intended result is to help consumers burdened with student loans to enter a program that is suited for their unique financial, student loans and employment conditions.
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.