As “young and restless” people firmly step into their future with dreams and eagerness in their eyes, prepare themselves for the higher education, they now face the seemingly inevitable concept of graduating with at least some weight of student loan debt on their shoulders.
While Millennials plan to earn a job after graduation to pay down their loans, this task has presented more and more hurdles in the recent years, as the country seems to sink deeper and deeper into the ocean of student loan crisis.
I still remember the time, after my graduation, when I started looking for a job to begin paying off my loan, it wasn’t this hard. But now sometimes it just seems impossible.
Today, a number of students graduate with the responsibility of paying off hundreds of thousands of dollars of debt, forcing them to face years and years of high interest rate payments. Let’s take a closer look at the different causes and effects of this unbearable student loan crisis, and what steps you can take to avoid drowning in the student loan debt.
What are the causes of the crisis?
When it comes to the student loan crisis, the prime culprit is the drastic hike in the cost of higher education, which has increased at a disproportional rate as compared to the rate of American wages.
Long gone are those days of opting for a part-time job to pay tuition. In addition to this, with more and more students going through college, the job market is relevantly becoming more and more aggressive, meaning if the generation X aspires to a thriving future, then a college degree is a must. But due to the excessive costs of attending college, students feel the compulsion to borrow more money than ever.
More often, student loans become the witness of these young people for borrowing money. A plethora of students and most of the parents lack the proper knowledge and education on the loans. Student loan agencies, in particular, are familiar with this fact, and usually leave no stone unturned in taking advantage of the young borrowers by increasing the interest rates, making loans even more difficult to pay back after graduation. This results in students racking up much larger amounts of debt on their account, frequently hauling it until much later into adulthood as compared to the past generations.
What are the effects of the crisis?
The student loan crisis has truly devastated both the job market as well as the overall economy. With hefty sums of student loan debt post-graduation, individuals have started taking the jobs opposite of their field of study due to one single reason that they need to find income in order to make payments on their loans. This strange scenario has disrupted the job market as the deserving job candidates face more competition and that too from the individual with the irrelevant field of study.
Another key effect of this student loan crisis is the major decline in home ownership among Millennials. Individuals under the age 30 shy away from buying a house because they are still swamped down by the student loan debt, making them either unable or reluctant to face a mortgage situation. This has caused noticeable issues in the housing industry, which is still on the road to recovery from the period of recession.
In general, this student loan crisis has inflicted immense negative impact on overall consumer spending, with young adults assembling a vital segment of the market. Those crushed under the large amounts of student debt have considerably less disposable income, which ultimately damages the country’s economy as a whole.
How to evade the student loan crisis?
The very first step should be to explore other financial aid options in order to try to minimize or eliminate the curse of borrowing. You should go for the Free Application for Federal Student Aid (FAFSA) as soon as possible so that to ensure that you are making the most of your financial aid package. You need to keep in mind that the FAFSA follows the approach of first-come, first-served basis at some of their institutions.
Apart from this, consider the scholarships and grants. A myriad of scholarships are provided to the eligible students in numerous states, federal and institutional level as well as from community and non-profit organizations. When it comes to the grants, they may be available at the federal and state level. In some states, these are also offered by the no-profit institutions.
If there is a need for borrowing money, there are a number of ways to try not to drown in the debt ocean. Your first step should be to avoid borrowing money from private lenders because the Federal student loans offer much more flexible and consumer-friendly loan terms. Fixed interest rates and income-based repayment options are some of the advantages that you gain by choosing the option of Federal student loans. If you decide to go for a private company for taking a private loan, then you must search for the most competitive interest rates with the best available options for loan repayment.
The most critical step is to be fully educated. Yes, it is vital for both students and parents to have one voice when it comes to borrowing money. Researching loan types, repayment plans, and interest rates together to avoid being taken advantage of by creditors who make money by preying on young people should be the ultimate idea.
It is completely understandable that you can’t always avoid getting pushed into debt, but if you try to save up as much as possible and choose more affordable things like a car with fewer options or a house with the needed things, then it is possible that you’ll end up borrowing less and spending less on paying interest.
If you’re worried about your credit and don’t want to leave anything on chance, then you can check your credit reports online once a year. An ideal process should be to track your credit more often and consult the experts easily understand the breakdown of your credit report information, which uses letter grades.