Student Loans Affect High Income Families

thinking graduate studentStudent loans continue to dominate the financial responsibilities of college graduates. As the cost of attendance increases, there are a lot of students who take out college debt just to get by and receive their diploma. This comes from a common belief that a college education is a straight ticket to the middle class.

This is not true and more often than not, the only thing waiting for a college graduate is student loan repayment in a few months. But college is still worth it, at least for some people. It still gives graduates a leverage over high school graduates and applicants who just had some college. It is never an assurance for a job but it increases your chances of getting one.

This is one of the reasons why there is an uptake in student loans most especially with the above middle-class families. Consumerist.com shares that from 1992 to 2012, students that belong to high income families had an increase in student loan availment from 24 percent to 50 percent. That is more than 100 percent increase showing that college debt is experienced across the board.

And as Marketwatch.com shares that one of the things that can solve the student loan problem is taking out the need for tuition fees. Just as Germany has recently done when they abolished the cost of higher education, this is something that can be achieved but will take a lot of will and determination on the part of the government.

As college graduates enter their grace period which also the best time to consolidate student loans, it is important to plan out other financial areas of your life and not just student loans. It might take the lion share of the payments but there are other funds that are worth looking into especially at the start of their careers.

Student loans and other funds

As Reuters.com explains, there is a downside to aggressive payments on student loans especially when it comes at the expense of the following financial tools.

  • Retirement fund. It is important to start with the retirement fund as early as possible. It is because of the compounding interest that works to your advantage the earlier and longer the money stays in the retirement fund. There is also employee matching where it could either be a dollar for a dollar or .50 for a dollar. Regardless of the amount being matched, look into maxing them out to take advantage of the program. The earlier you are able to start on your retirement fund, the more you will have in the future and be able to retire at the age you want and not what you need.
  • Emergency fund. Another thing you need to look into as you are making payments on your student loans is building up your emergency fund. This is your armor against getting in debt when you experience trying times especially with your finances. Your emergency fund will help you to continue paying for your bills even when there is no income that is coming in to your budget. This also helps you stay away from using your credit card in paying for bills. This is essentially borrowing money to make a payment to someone else.  This will also help you keep your accounts current especially your student loans.
  • Insurance protection. This is another form of protection against uncertainties in life. It can also put you at ease knowing you are protected whatever happens. There are some skeptics that will argue that insurance is just a waste of money and that the companies are just duping you out of hard earned money. But getting insurance either for yourself or your home or even for your business is a very important part of your financial life. This is something that you do not want to have any use for but when the time comes, you will be very thankful that you have one.
  • Investment opportunities. Similar to retirement fund, waiting to put in some investments and aggressively paying down your student loans might make you miss out on potential return on investments have you started investing early on. Manage your funds wisely that you do not miss out payments on your obligations especially student loans and simultaneously build up other funds as well. This is where benefit of consolidating student loans, having an easier time managing the payments and free up some resources for investment.

Addressing student loans before they happen

One of the things students can do is to plan out their college experience that they are able to manage not only their grades but their student loans as well. Mark Cuban told CNBC.com that one way to help the economy beat the student loan problem is to actually limit the amount that students are able to borrow. This move will save the government money and students will have to find a way to fund the rest of the cost.

This might be a little hard for the students but here are some tips on how to manage student loans better.

  • Committing to degree. This is one of the first things you need to determine before going to college. It will help a lot if you have an idea on the field of work you are planning to get into when you graduate. This can then let you focus on specific courses that can help you land a job in the industry that you want. Taking into consideration your talents and skills is also an important part of deciding your future. Sticking to a degree that you like can give you focus in finishing your studies at the soonest possible time. It can also prevent shifting degrees while in college and unnecessary student loan/
  • Looking at your options. There are different schools that you can go to for college. Community colleges usually offer the least expensive education among all the types of schools. There are also in-state schools that state students can explore.
  • Fill out the Free Application for Federal Student Aid. This is one thing that students and parents alike should not pass up. The FAFSA is your ticket to all the possible government support that you are eligible for. There are families who opt to pass up this opportunity and go straight to private loans.
  • Understand your financial aid package. Once you fill out and send your FAFSA form, you will in turn get a financial aid package according to the extend of your financial need. This can include grants and scholarships from the school and state, subsidized student loans and unsubsidized loans. You need to take the free money first and the subsidized loans next. These are the ones that will help lower down your repayment amount.

Student loans has a pull on the national economy

Having about $1.2 trillion student loan can hold back the national economy in many ways. There are borrowers who are putting off a lot of financial decisions because of the amount of student loan that they are carrying.

  • Mortgage loan. This is one of opportunities that consumers with student loans are passing up because they might not be able to make the mortgage payment and their student loans at the same time.
  • Car loan. As much as some graduates need a car, they wait until they are either able to lower down their student loans or pay them off completely.
  • Business opportunities. There are graduates who wish to put up their own business but instead of saving for the capital they need, they are making payments on their student loans.

Student loans will always have an effect on a graduate’s life. It is important to understand how to repay the loan but simultaneously build up other funds as well.