At one time, going to college was something that only a small percentage of individuals accomplished. In today’s technologically advanced world, however, it is almost a necessity to get a degree if you want to succeed in your adult life.
Most students rely on student loans to pay at least part of their college expenses, which means that when they graduate, they start out their professional lives in debt. This is becoming more and more of a problem, in part because of the rising number of people who end up defaulting on their loans because they simply cannot afford to pay them back. What is the average interest rate on student loans now? Why are they so difficult to pay back? Is there anything that can be done about the high default rate?
Below are some answers to these questions and more to help guide you through the often complex web of the world of student loans.
The Basics of Student Loans
Today, roughly 40 million Americans have student loan debt, which is up from 29 million during the recession of 2008. Moreover, the average student has three or four student loans by the time they graduate from college, averaging $29,000 each. What does all of this mean? This has resulted in over $1 trillion in total student loan debt in the United States, which is roughly 80% higher than it was in 2008. Furthermore, since many students receiving these loans have no credit history or proven financial record, they are often doomed from the start and are unlikely to be able to pay back the loan in full.
Since 2008, even more students are relying on student loans to get through college. Student loans are available through a number of sources, and include those that are subsidized by the government. Their interest rates vary but are normally in the range of 4% to 7%.
“This sounds as if they should be easy to pay back; however, since many people graduate and get jobs without the salary necessary to make the monthly payments on the loan, many students either pay less than is required or cease making payments altogether,” buddyloans.com CEO said.
These days, roughly 15% of students who took out federal loans to help pay for their education have not made a payment on their loan in over a year. This is in part because salaries have become stagnant, which makes paying back a student loan that much more difficult.
It Is Not All Bad News
Since people with a college degree tend to earn more than those without a degree do, it is often easier for them to pay back student loans than it is for people without a college education to repay other types of loans. If you receive a good job after you graduate from college, paying off your student loan is simple. If you continue to make regular payments on the loan, it can greatly improve your credit score.
Regular, on-time payments affect your credit history in a positive way, and since student loans often come with a low monthly payment amount, paying back the loan can be easy for those starting out with a job that has a decent salary. This is important for many reasons, but especially because people graduating from college often have a less than favorable credit score and need a way to raise that score.
Although repayment of student loans can be difficult, if a student begins their career with a decent-paying job, paying back their student loan should not be difficult. Even with the statistics listed above, the majority of students pay back their student loan eventually. However, the rising cost of college and stagnant salaries mean that the problems associated with student loans will likely continue, at least until we can find a solution.