If you have been watching the news, you know Student loan servicers have been under…
While nobody likes debt, student loans may not be the crucible you’re expecting. Further exacerbating the issue is talk of the Student Loan Crisis currently gripping America. To understand why maybe you shouldn’t worry about student loan debt, let’s explore what the current loan crisis actually is.
Worry About Student Loan Debt and the Student Loan Crisis
The abridged version: The price of college is soaring, to compensate for this more and more families must take out exorbitant loans saddling them with mountains of debt. To make matters worse, a college education is not the professional golden ticket it once was and students are finding themselves either unemployed or underemployed with no way to pay back their debt mountains.
The first thing to understand is that, at varying levels, all of those things are true. The second thing to realize, it’s not quite as cut and dry as all of that. While the picture painted above is the reality for many, it is certainly not the reality for all. There are factors that this doom and gloom scenario neglects in order to sensationalize the narrative. The student loan crisis shouldn’t immediately lead you to worry about student loan debt.
Student Loan Crisis?
Are there problems with the way student loans are handled in America? Very much so. However, these problems with the handling of student loans are being used to negatively frame student loans in general, which is an inaccurate assessment of the situation.
Here are a few questions, that when answered tend to show the “crisis” in a much different light.
Do all the students who take out loans earn degrees?
The answer is no, yet they contribute to the “debtors aren’t getting jobs” statistics.
What degrees are people earning?
Not all majors are created equal. The fact is, some majors are more likely to get your student a job than others. Beyond just majors, networking and internships must also be considered. The takeaway from this is that certain majors, without a specific career track in mind, can lead to much more difficulty finding a position after graduation. There is less reason to worry about student loan debt if you enter college with a plan.
What kind of loans are being taken out?
Just as all majors are not created equal, all loans are not created equal. The fact that private loans and federal student loans are both considered student loans is needlessly confusing, at best, and altogether inaccurate, at worst. Loans offered by private lending services typically offer none of the protections featured in federal student loans and are often much less forgiving. They are not the same and should not be considered as such.
The message that purveyors of the Student Loan Crisis are leaving out is that it’s not just whether or not you take out loans, it’s how you take them out, how you repay them, and what you take them out for.
What you can do to avoid personal crisis
While reports of national crisis may have been greatly exaggerated, there are still steps you can take to help insure you don’t suffer personal crisis. You should explore these steps to help relieve some of the worry about student loan debt.
Explore your repayment options
One of the biggest mistakes people make when repaying student loans is not exploring all of the options available to them. This is because, more often than not, they are not aware of the their options. Why? Because the loan servicing companies handling the loans do not do a good job of informing people of their options. Is it possible that this is just an unfortunate oversight across the board? Maybe. Do they stand to gain from keeping the general public in the dark? Absolutely.
A common example of the way these loan servicing companies work: A recent grad struggling to find work starts getting the several hundred-dollar bill to start repaying her federal student loans. She knows she can’t afford it, so maybe she goes to the Department of Education website, but more likely the website of the private company contracted with handling her loans to investigate her options. What she is likely to find are links to deferment and forbearance in plain view. Thinking her problem is solved she will likely choose one of these options and put off her debt until she can actually afford it, having also increased it by thousands of dollars. What she didn’t know, is that she could have switched her repayment options to an income-based repayment plan. She could have lowered her monthly payments to as low as $0, depending on her circumstances.
After extensive study, the Consumer Financial Protection Bureau (CFPB) discovered rampant mishandling of loan services, most frequently in the form of not informing debtors that they qualify for lower payments. In fact, the majority of the problems that make up Student Loan Crisis can be traced back to the failure of loan servicing companies to adequately disseminate this vital information to their debtors.
Though the CFPB has reforms in the works designed to stem the exploitation of debtors by loan servicers, the best thing you can do is always stay informed of your options, whether they volunteer the information or not. Visit My College Planning Team for a free consultation to make sure you have all the information and guidance you need to come up with a strategy that best serves your specific situation.