Investment advisor on student debt: 'Act now'
Published: Friday, April 6, 2012
Updated: Monday, August 27, 2012 16:08
The average student debt in the nation recently topped $25,000 per graduate, up 25 percent in the last 10 years, increasing fears that debt from student loans could be the next economic hurdle on the horizon.
With students graduating into a job market that is only recovering at a sluggish pace, much of the financial burden from student loans is shouldered by parents, many of whom are baby-boomers about to enter retirement. In a new report by the Federal Reserve Bank in New York, American ages 60 and older still owe nearly $36 billion in student loans.
“This could very well be the very next debt bomb for the U.S. economy,” said William Brewer, president of the National Association of Consumer Bankruptcy Attorneys.
Federal loans typically have lower interest rates which is the reason why nearly 80 percent of loans issued are by the government.
Lauren Kelly, a senior expecting to graduate this spring, is borrowing federal loans to attend DePaul.
“My parents help manage and pay off some of my student loans, but a lot of it will become my responsibility,” said Kelly.
Kelly said that her parents, who are also assisting her brother through school, feel that higher education is important but is too expensive to take on by herself.
Terry Savage, a financial columnist with the Chicago Sun-Times and certified investment adviser said students loans are not always a good deal.
“Universities like loans because it fills up the classrooms,” said Savage. “Students like them because they don’t need to think about tomorrow. Well, tomorrow is now.”
Savage pointed out that when student loans are not paid by the borrowers, the government has the power to garnish the borrower’s wages, and seize tax refunds, social security and other federal benefits. Outstanding debt can limit the borrower’s ability to make long-term purchases such as a house or qualifying for a mortgage.
“The hardest step for students is to face up to it,” said Savage. “Don’t be discouraged, but don’t ignore it.”
In a recent column,
Savage recognized that student loan payments can be daunting and confusing, since many students borrow from more than one loan service. However, she introduced some useful tools that can simplify the payment process and provide a roadmap for making payments.
PayBackSmarter.com is a free service which allows borrowers to total up their student loans and offers various repayment plans that will show the monthly cost and when it will be paid off.
The point is for borrowers to look at all their options in one place. Options include loan consolidations and reduced payments depending on the borrower’s situation. The website also shares advice on the best alternatives to standard payment plans.
“They have an obligation to help you,” said Savage. “You can’t do it alone.”
She said the best advice is to “act now” and come up with a plan to pay off loans. She urges students to take advantage of resources at their schools while you’re still a student.
“One day it will have been worthwhile,” Savage said, addressing students taking on debt. “You will have good, paying jobs in the long run.”