15 Eye-Opening Facts About Student Debt That Will Make You Rethink Your Finances

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Higher education is a common goal for many. However, the high tuition fees often lead to people taking out loans. This leaves many people in student debt that they spend decades repaying. Understanding specific facts about student debt and how it works can be a great way to manage your finances and relieve the stress properly and worry that usually come with being in debt. Here are 15 eye-opening facts about student debt that will make you rethink your finances:

Student Debt Cannot be Discharged in Bankruptcy

Most debts that individuals often find themselves in allow them to discharge the debt by filing for bankruptcy. However, unlike most debt, student debt does not allow you to do the same except only under certain circumstances of undue hardship where you will have to meet specific criteria that will allow you to do so. The only way to get out of student debt is usually by paying off the debt once you begin earning an income stream.

Some Student Debt Can Qualify for Debt Forgiveness

Some graduates with federal student loan debt may qualify for debt forgiveness if they meet certain criteria. These criteria include being employed by a government or non-profit organization, teaching full-time for five complete and consecutive academic years in a low-income school, or if the university or school closes while still enrolled. Debt forgiveness can come in the form of programs that forgive the debt partially or entirely.

Student Debt Grows Faster than Other Household Debt

Since the turn of the millennium, student debt has been one of the fastest-growing debts in most American homes, coming in second only after mortgage debt. As more and more members of families go into higher education, the number of student loans also increases, leaving many families in student loan debt more than most kinds of debt. More people are in student debt than even auto loan or credit card debt. Therefore, you must take control of your debts and try to repay them systematically to avoid the stress it may cause on your entire daily.

There Are Special Repayment Plans for Student Debt

Individuals with federal student loan debt can qualify for unique repayment plans like income-based repayment or IBR, pay as you earn or PAYE, and Saving on a Valuable Education or SAVE. These repayment programs reduce loan payments to a more affordable level based on an individual’s income and family size. You would also have to meet specific criteria to qualify for these repayment programs, but they can help you save money while paying back your student loans.

Debt Forgiveness and Repayment Plans May Not be Available for Private Loans

The debt forgiveness programs and repayment plans for student debt only apply to individuals with a federal student loan. These programs are not eligible for individuals who have opted for student loans from private lenders. Therefore, before you take out a student loan, you must weigh all your options and look at the benefits you may receive from each kind of loan.

Subsidized Federal Loans Are Available for Students with “Exceptional Financial Need”

Unsubsidized loans are generally available for all individuals regardless of their financial need; however, subsidized federal loans are also available for students who have “exceptional financial need.” These kinds of loans come at a subsidized interest rate, and students who qualify for them are not charged interest until they graduate. Subsidized loans also come with a six-month grace period after you leave school before you are required to begin making loan payments.

Private Student Loans are not Based on Your Financial Needs

If you want to take out a student loan, you must know that private lenders like banks, credit unions, etc., do not provide the loan based on your financial need. You must pass a credit check and prove your creditworthiness to get a student loan from private institutions. The debt acquired through these loans often requires payment strategies that may be different from a federal student loan debt. These loans may not be as flexible as federal student loans, and a private student loan debt may have different consequences from a federal student loan debt.

All Federal Student Loan Debt Can be Eligible for Forgiveness

It may surprise many that student debt acquired through federal loans can be eligible for debt forgiveness. The Public Service Loan Forgiveness program offers student debt forgiveness for individuals who work for federal, state, local, or tribal governments or not-for-profit organizations. Therefore, if you have student debt and you work in any of these areas, you can find out what kind of debt forgiveness you may qualify for, and potentially have your debt forgiven.

Student Debt Must be Repaid Regardless of Graduation Status

All student debt must be repaid whether you graduate from the course you enroll in. Nearly all federal student loans require you to start making repayments after six months you leave college, whether you have completed your degree or not. Therefore, if you are already in college and if you have a student loan, you must adequately consider all the consequences that may arise before you decide to drop out of college.

Working and Studying Can Lower Student Debt

As a student with a loan, you can significantly lower your debt by working part-time while studying in an educational institution. There are plenty of work-study options for students these days that enable them to work outside or within the school campus to minimize the overall debt they may acquire throughout their education. You can also consider more affordable schools that provide the same quality of education to minimize your student debt.

Keeping Up with Your Student Debt Payment Can Improve Your Credit Score

If you have a student debt for which you must make regular payments, you must do so diligently to avoid any harsh action. Making regular payments towards the debt can also cause your credit score to significantly improve, which can be very beneficial for you if you want to take loans like a mortgage in the future or to increase your chances of landing a job or an apartment as some employers and landlords consider credit scores.

Your Account Is in Default After 270 Days of Late Payment

Once you fail to make any payment towards your student debt for 270 consecutive days, your payment is officially in default. Your account will be referred to a collection agency, which will take all necessary actions to ensure you make the payments as soon as possible. You may also be required to pay extra collection fees for the debt collectors. Try making student debt payments as regularly as possible to avoid such extreme actions to be taken.

Student Loans are Unsecured

Most student loans are unsecured, meaning they have no collateral that can be seized legally. Even private lenders like banks and other financial institutions do not have the right to take away your property if you do not pay off your loans. Regarding federal loan debt, non-payment may also lead to wages being garnished and tax refunds being withheld. Although student loans are unsecured, there may be other ways for financial institutions to cause difficulties if you do not pay off your loans.

Your Student Loan Debt Will Impact You Financially

Based on your student debt and the repayment strategy, you may be faced with different kinds of financial consequences. It is often recommended to keep your student loans to a minimum as the payments you may be required may be higher than you initially expected, which can impact how much you are expected to pay each month until your loans are paid off or forgiven. Before taking out a student loan, analyze your potential future financial situation to determine what kind of salary you expect and how much money you will have to make regular payments.

There are Dangers in Borrowing Too Much

There are certain risks associated with borrowing more money than you need for your education. With high borrowing limits, you can easily fall into the trap of borrowing too much, which can lead to a lot of financial stress in the future. The inability to clear off student debt can negatively impact your chances of home ownership, and high borrowings can lead to lengthy repayment plans that keep you in debt for up to 25 years.

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