It’s such a big understatement to say that student loan debt is a crisis. 1.7 trillion dollars – an amount so massive that no company in the Fortune 500 makes even one-third in their annual revenue. And that’s the amount U.S. college graduates owe on their student debts.
Aside from that, the most indebted college students in history are millennials. A study from New America shows that people under the age of 34 have total student loans of more than $620 billion as of mid-2019.
That’s a sad and worrying fact when you consider that most students who take out student loans are financially inexperienced. These students take out more than they need. But it’s always necessary to match your student loans to your expenses and borrow as small as possible.
With that said, here is how student loan debts can impact your life.
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You May Have To Give Up Grad School
Enrolling in a graduate school can be expensive, but it can also mean the difference between earning a low to a mid-range salary. For example, according to the National Association of Colleges and Employers, the average starting salary for people with an undergraduate degree in business administration was a bit over $57,000.
However, people with masters in business administration or MBA receive almost $58,000 as their entry-level salary. So before you can enroll in grad school, you have to make a big decision.
You have to determine the future costs and how much you’ll earn in your field after graduation. Also, you shouldn’t forget to include your current student loan debt.
Students who complete their undergraduate courses leave with massive student loans. Unfortunately, that means they have to wait, or worse, forget about enrolling in a graduate school altogether.
Of course, you can rely on student loan forgiveness, but most of them take about a decade or more to get rid of them. And you have to commit to a specific year of service before your loans can be forgiven. So if your career is in line with the service, excellent, go for it. If not, that might be a problem.
Delay Your Ability To Buy A Home
One of the most common ways to purchase a home is by borrowing money with a mortgage. But, unfortunately, if you have massive student loans, you already have one enormous debt to clear off. And that can be difficult for people to take care of both the student loan and the mortgage payment.
Also, if you’ve got a debt, it can be challenging to qualify for a mortgage in the first place. According to the Federal Reserve, a 10% increase in student debts corresponds with a 1.5% reduction in homeownership rates.
One of the biggest wealth builders in the United States is homeownership. So if you delay in buying a house, it can significantly affect your ability to increase your wealth.
You May Have To Live With Your Parents
Even though it’s true that some renters can’t buy a home while in debt, other people can’t even afford to rent apartments. This situation is more accurate to students living in big cities such as Chicago, New York, or Boston.
According to the Apartment Guide, the average rent for a one-bedroom apartment increased from $1,596 in 2019 to $1,621 in 2020. That can be a big problem if you have about $30,000 in student debt.
A study by Zillow showed that about 14 million people between the ages of 23 to 37 still live with their parents. These numbers are enormous compared to the previous generations.
These young adults can’t leave their parent’s side. And that’s because they don’t make enough money to pay their rent and repay their student loans simultaneously.
Student Debt Never Goes Away
Student loans are quite different from other types of debt. For example, if you can’t afford to make your car payments, you can return the car to the dealership. Likewise, a homeowner can take the keys back to the bank if they can’t make the mortgage payments.
But when it comes to student loans, that’s not the case. You have nothing left to return by the time you start paying back your student loans, and that’s because you’ve already used up the money. And don’t even think of bankruptcy because student loans are rarely discharged that way. It’s possible but rare.
However, there is a way out, though. You can opt for student loan forgiveness, such as Public Service Loan Forgiveness. You can get your loans forgiven provided you qualify for the requirements.
Most students take out student loans to pay for their education. But before you do that, you have to consider the consequences of taking out a student loan. You have to be well-disciplined to borrow what you only need and have a solid strategy to pay it back.
If you don’t know how to proceed, we recommend seeking a student loan expert before you begin.