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Facts About Student Loans

Sep 14, 2007

Getting a student loan is widely considered a necessary evil for students looking to finance an increasingly expensive college education. Unfortunately, many students are under-informed when it comes to loans and borrowing for school. Read below for some important facts about student loans and how the industry might be changing.

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Student Loan Facts

The majority of college students now need to borrow money to pay for schooling - about 60% of the 20 million college students in the U.S., according to American Student Assistance. And while financial aid in the form of loans can be a life saver for many students, the burden of loans is growing to astronomical proportions. As of 2014, the country's total student loan debt is about 1 trillion dollars, and about 37 million people who have taken out a student loan still owe money on that loan.

If you are a student or about to become one, educate yourself on student loans and how it could affect your life by reading the information below.

1. Leaving College With Debt

College has become more and more expensive over time, with the cost of tuition and fees more than doubling since 2000. This rise in cost might explain why students in the class of 2012 who took out loans for bachelor's degrees graduated with a national average of $29,000 in debt. In 2010-11, about 57% of undergraduates from a public 4-year university graduated with debt, according to American Student Assistance, and 19% of households in the United States had student loan debt in 2010. That's double the number of households that had student loan debt in 1989, according to the Pew Research Center.

Sadly, the student loan issue affects our youngest citizens at a high rate. The Pew Research Center notes that roughly 40% of people who are 35 years and younger and heads of households had student loan debt as of 2013.

2. Private Loans Are Making a Comeback

Private loans are loans taken from a bank or other institution, rather than the government. A private loan can be very helpful for students if federal financial aid doesn't cover the entire bill for school. However, private student loans come with higher risk; they have steeper interest rates than their federal counterparts, translating to a higher debt burden after graduation. Private loans also do not come with safety nets, such as forbearance or deferment, and there are no programs for loan forgiveness.

Before 2008, the private loan industry was huge business, with a market of about $20 billion. After the recession, this market fell to less than $6 billion by 2011. Recently, however, private student loans have made a recovery and the market is growing again. As of 2013, private loans make up approximately 14% of all student debt.

3. Student Loan Debt as an Economic Problem

The number one type of consumer debt is mortgages, and right behind that is student loan debt, which also accounts for a whopping 6% of the overall national debt.

As of 2013, almost 12% of student loan payments were over 90 days late, while debt from credit cards, mortgages, and auto loans actually decreased. This fact has serious implications for the U.S. economy, in that graduates who cannot afford to pay student loans are also not participating in the economy by buying cars, homes or other consumer goods.

4. Debt After Graduation is Problematic

Students who have significant student loan debt upon graduation may find themselves struggling. While college graduates tend to fare better than those who only have a high school diploma, it's still tough to find work.

According to the Accenture 2013 College Graduate Employment Survey, many American college students expect to make more than $25,000 per year directly after graduation. But the reality is that a third of recent graduates made less than $25,000 as of 2013. And, to add insult to injury, about 50% of graduates are working jobs that don't even require a college degree.

Add to this the large number of students who graduate with more than $3,000 in credit card debt, and a picture begins to emerge of American college students who are unrealistic about debt and their future financial prospects.

5. The Government Is Getting Involved

The federal government has realized something is wrong and is taking steps to right the ship. The College Cost Reduction and Access Act, which was passed in 2007, is a broad-ranging set of laws meant to change the way student loans are handled and repaid. Some of the hallmarks of the law include Income Based Repayment Plans and Loan Forgiveness programs, as well as interest reduction.

In August of 2013, President Obama signed the Bipartisan Student Loan Certainty Act that tied federal loan interest rates to the market, thus reducing the interest rate on Stafford loans to 3.86%. This same bill guarantees a cap on undergraduate interest rates at 8.25%. Similarly, Senate Democrats proposed a student loan borrower's 'Bill of Rights' in 2013 that details how loan information is disclosed to students and how repayment is to be managed.

Check out this article to learn about other financial aid options.

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