Many students don’t take action regarding their financial situation during college, leading to high student loan debt after graduation.
Special to Mustang News
The pressure of obtaining a college degree is higher than ever. Get a degree, and get one step closer to the American dream: successful career, financial security and maybe even a white picket fence wrapped around a charming suburban house.
But for many, that dream could be at the end of a very long line of debt payments.
Student loans are rapidly becoming the bane of college students’ lives. They’re one of the biggest debts Americans hold, second only to home mortgages. According to the Project on Student Debt, run by the Institute for College Access and Success, more than two-thirds of college students graduate with some level of debt. The average amount is $26,600. These figures, however, have yet to bring about much action on the part of many students.
“It’s probably not the smartest thing to do, but for the most part, I’m ignoring (my loans) until I graduate,” theatre arts junior Nicholas Cocores said. “Then I’ll start chipping away at them.”
But this “out of sight, out of mind” attitude, while certainly more enjoyable than fretting about money for four years (or more), is not the best way to handle the stress.
The national student loan debt is approximately $1.2 trillion. Higher education is becoming inaccessible and pricey, and one of the big reasons for these skyrocketing numbers is lack of financial literacy among college students. Students over-borrow and often don’t understand the different options for a loan repayment plan.
Just Google “student loans.” A mass of articles and websites pop up, detailing countless horror stories from young adults who didn’t do their homework. Fail to pay off student loans and a domino effect comes into play: credit scores skyrocket, making it impossible to apply for loans in the future. It’s even possible a portion of a person’s income will be withheld and sent to the loan holder until the debt is paid off.
“It’s really on the person themselves to learn about all of their responsibilities when it comes to money,” said Stephen Hiltscher, a financial planner at Blakeslee & Blakeslee. “But it’s also difficult, because it really comes down to a person’s income, the amount of debt and their desire to save for the future, which can be counterproductive. But working with a financial professional can be really helpful in finding a strategic method to pay down debt.”
While this subject may seem as dry and dull as reading Plato on a Saturday night, taking the time to research and understand financial planning before taking that all-important step into real adulthood is a necessary evil for students struggling with loans.
The first step is understanding the difference between federal and private loans, which affects the payment plan after graduation. Federal loans typically have lower interest rates, making them easier to pay off. Also, some federal loans are subsidized, meaning after graduation the student has a six-month grace period during which the government pays off the interest. Private loans usually have a higher interest rate and different rules when it comes to payment plans.
The next step is learning the different payment plans offered. The two most common are a standard repayment plan and a graduated plan. A standard plan usually involves the person paying a fixed amount of at least $50 a month for up to 10 years. While it might sound like an arduous journey to being debt-free, it usually has the least amount of interest. A graduated repayment plan starts out low, and the amount increases every two years for up to 10 years.
There are several programs available in San Luis Obispo for people struggling with debt and student loans. SurePath Financial Solutions is a non-profit financial counseling agency with offices spanning through the Central Coast. The organization offers several online financial education plans for those trying to secure their finances.