Student debt has reached an alarming benchmark. It now tops one trillion dollars. Loans for higher education exceed all other consumer loans except mortgages.
Two-thirds of college graduates carry a debt burden. Consumer Reports says it is twisting the lives of young people and creating a drag on the economy.
Kristen Mercado is proud of her college and graduate degrees, but says the 100-thousand dollars in student loans are crushing her.
“I’m sitting here sometimes wondering, oh, can I afford to go do food shopping today or do I need to wait until my next paycheck, and I’m sitting here feeling like what was the point?” said Mercado.
She says the loans take a quarter of her take-home pay as a social worker, leaving her barely enough money for living expenses.
But government loans like Kristen’s do have advantages over private loans. You may have the right to a temporary deferment or a flexible repayment plan.
Students should only get loans from private lenders, like banks, as a last resort, advises Suzanne Martindale, an attorney and student loan expert.
“Private lenders don’t have to offer flexible repayment plans to students. And they may not come with fixed interest rates for example. And so that may make them costlier and riskier, harder to repay.” said Suzanne Martindale.
Other ways to minimize student debt —
>Consider attending a state school.
>Submit the federal loan application, called the FAFSA, as early as you can.
>And borrow only what you really need, not the amount you qualify for.
Consumers Union, the advocacy arm of Consumer Reports, says, however, no matter how careful borrowers like Kristen are, their debt is having a profound effect on the economy.
“In record numbers, young people in their 20s and 30s are delaying major purchases, such as buying a car, buying a home, starting a family.” said Martindale.
Consumers Union is calling for changes in current law so students get standardized, easy-to-read information about their financial aid options, including grants and scholarships, before they commit to loans. Also, students should have the right to refinance their loans as circumstances warrant. And private lenders should be required to offer flexible payment options as the government now does.