Is College Debt Good or Bad?
College debt refers to a type of debt whereby a college student either one who is attending, withdrew or already graduated, was provided with funds to get them through college. Though education is important, thinking about graduating while in debt and job are not exactly a guarantee, it sounds tricky. However, in the long-term, borrowing for college is worth it but it is important that families identify how far to go with borrowing. Studies have been showing up providing college debt statistics over a variety of college debts.
Both federal as well as private institutions offer college loans. It is therefore, important that families weigh their options before settling for either of the college loans. You also need to consider the facts about the situation before going in for a college debt.
What you need know about college debts
It is important that you are in the know-how about this type of debt before you can decide on further aspects regarding it. To help you out, the following are aspects you need to know to help you make the right choice.
About 2/3 of students in college rely on college debt to complete their education and graduate
Joining college is a dream for many but with financial restrictions, many let go of their dreams. Even with the thought of a loan, they will prefer to let go other than struggle with a long-term debt that may prove difficult to pay back. Many other students will not want others knowing that they are financially unstable. Rather than let go of your dreams, it would be comforting to know that a great number of students are in a similar situation.
Some students graduate without college debt.
According to statistics, it is evident that there are students who have graduated without any student debt. More Asians than any other group graduate without a debt in college. Of these groups, it was identified that this group was greatly from students whose parents received an annual income of more than $100,000.
Students attending public universities and graduated without a debt are more as opposed to those in private or non-profit universities.
Students in private universities/ colleges accumulated more debt
It is estimated that students in private colleges accumulated more college debt at the end of their education. This is because they tend to borrow from private college loans as opposed to borrowing from federal loans. Private loans come at a higher rate and for the same amount borrowed; one will be paying much more when applying got a private college loan.
Which college debts are safer? Federal vs. Private
The average college student debt is currently at $26,600 for each student. These figures will even double but this is for very few students. There are basically two types of college loans students can borrow from. These include:
Federal college loans
These are offered by the state and are generally more affordable. In addition, they are less restrictive and their rates are lower.
Private college loans
Private institutions offer these and because they are out to make the best returns possible, it can be tasking to make payments. The rates are higher and they come with more restrictive terms and conditions.
Loans provided by the government for education are safer especially if you are looking at the larger picture. Keep in mind that though it is a college debt, it has to be paid even after your graduation. It is therefore, advisable that students look into federal education loans when looking to get through college.
Many find it difficult to access federal loans especially on time and may opt to go for the fast processing private loans. This has led to the increase of private loans for education. Another concern that is contributing greatly towards the increase in use of private loans is the lack of knowledge. People lack the necessary information regarding education federal loans. Private loans are advertised and sales people put on the ground to push this product. On the other hand, federal loans remain in the dark and unless families or school push what they have to offer, students shy away from what they do not know.
Why is the federal loan safer?
These loans are safer first because they are subject to income-based payback. In addition, the interest rates are fixed and it will take a student 9months to default on it. In this, you will pay back once you start receiving an income as opposed to the strict private loans that require you to follow the terms and conditions whether or not you are receiving an income. No matter how long you are in debt, the interest rate does not change. The college debt crisis in reference to payback is on the increase especially with private loans is that the rates keep increasing with time and the longer you hold on to a debt, the more you will keep paying back. In this, federal loans are safer because:
They are subject to income-based payback
Their interest rates are fixed
It takes about 9 months to default
What is the cost of student debts?
College education is being emphasized upon but the expensive cost of going through a course is rather de-motivating. However, more people are signing up for a college degree and relying on education loans to complete their course. This may lead to a crippled economy especially with the lack of employment opportunities. Currently the average college debt loan is about $1.2 trillion and the payback mode is on the low. It is therefore, important for students to limit their borrowing.
College debt is a positive aspect but only if used towards the right purpose. According to the Student Debt Crisis, the cost of attending and graduating from college is drastically increasing. Before deciding on the college debt to settle for, it is important that you educate yourself on the different debts and which is best to suit your preference and needs. By understanding the overall cost of college debt, you will be identifying your financial freedom as early as when you are in college.