Many people in the United States are drowning in debt; specifically student loan debt. Americans owe a collective $1.77 trillion in federal and private student loans as of March 2023, and these burdens are hard for many people to escape. So what are your options when it comes to paying your student loans?
Let’s talk about student loan debt and whether or not paying debt with a credit card is a good idea (hint: it’s not).
How bad is student loan debt in America?
Borrowers in the US owe a combined $1.77 trillion in federal and private student loans. This is a tremendous burden for the approximate 43 million Americans with student loan debt. When we compare this to $243 billion in education debt just 20 years ago, it’s clear that student debt has accelerated at an alarming pace.
Why has this debt increased so dramatically? It doesn’t help that college is more expensive now than ever before. According to Bankrate, the average in-state tuition for a public college is $26,027 while the average private university student spends $55,840. That is per year and does not include room and board and other expenses that are incurred. For an 18 year old person, this is a tremendous bill to face and a hard spot to be in. For many who take on this debt it is hard to imagine how it will snowball and affect their future.
What are the effects of student loan debt?
Student loan debt has many effects, not only for the borrower but for the economy at large. While student loan debt will help some get their dream job, that is not true for everyone who is saddled with this debt.
It is bad for mental health.
Student loan debt weighs heavily on the minds of many. In fact, according to a study by ELVTR, the mental health effects of student loan debt are striking. Consider the following statistics:
- 54% of American borrowers have experienced mental health issues due to student debt.
- 84% of American borrowers have delayed a major life event due to student loan debt.
- 32% of American borrowers have had depression due to student debt.
- 20% of American borrowers have experienced insomnia due to student debt.
- 17% of American borrowers have had panic attacks due to student debt.
- 36% of American borrowers regret borrowing money for school, while an additional 23% doubt if borrowing money was a good idea.
Debt clearly has a huge effect on the minds of borrowers. Considering that many people are making this choice when they are very young in life, it’s not hard to see how so many are in over their head with student loan payments.
It lowers the rate of homeownership.
With so many young people saddled with student loan debt it is hard for them to buy their own house. Data from the Education Data Initiative shows that people are 36% less likely to purchase a home if they have student loan debt. Borrowers are worried that additional debt will ruin their credit and cause too much damage.
It lowers consumer spending.
When people are in debt they have less disposable income. This means that they cannot inject money into the economy the way they could if they were unencumbered by student loan debt.
It causes delays in life events.
Borrowers are waiting longer for traditional life events than previous generations. This means that getting married and having children are being put off later and later. Many cannot afford the wedding they want to have or the cost of raising a family, so they are waiting longer for these milestones.
It gives students less autonomy.
Student loans were initially designed to help kids get an education. But the student loan debt industry has morphed into another entity in recent decades. Universities are charging more than ever before, investing more than ever before, and profiting more than ever before. For so many students, the price tag of college has caused a shift in economic power.
How can I pay off my student loan debt?
While changes to the existing college system are certainly needed, change will do little to help the millions of borrowers who are already in the trenches with their debt. If you are having trouble making your student loan payments, here are your repayment options.
Don’t: Use a credit card
In general you cannot pay a student loan bill with a credit card. Loan servicers do not accept them directly. You may however be able to use an intermediary service that will allow you to use your card. An intermediary service will charge your card (plus a processing fee) and then they will make your loan payment from their funds. But there is really no benefit to doing this. After all, you have not paid off your debt, you have simply moved it to a different place. And you are actually in more debt than you were before because of the additional processing fee. The interest rate on your credit card is also likely higher than your student loan rate, so you will end up paying a lot more than you would initially.
But what about credit card rewards? Any benefit will almost certainly be offset by processing fees or additional interest.
But what about a 0% card? In some instances you may be able to use a card with an introductory 0% rate. But this rate is only temporary, so unless you plan on paying off everything within that time period, you will be stuck with a huge interest rate. So just trust us: don’t pay for your student loan on a credit car.
Do: Refinance your private loans.
Refinancing your private loans may help you get a better handle on your monthly payments and get a better interest rate. If you have private student loans you can refinance them by shopping around. Looking at different lenders in your area and online will help you find some competitive rates. Refinancing these loans and reducing your interest rate can help save you a lot of money. If these loans are federal, you will no longer be able to qualify for repayment programs that are designed for student loans, but if you find a good rate this may note be necessary anyway. It’s just important to keep in mind that once you refinance with a private lender you cannot go backwards.
Don’t: Get a payday loan.
If you are feeling panicked, avoid getting a high interest payday loan. These loans will help you make your payment, sure, but they will leave you with an incredibly high interest rate that you will have trouble repaying.
Do: Ask for a deferment.
Asking for a deferment will allow you to take a pause on your payments until you can get your head above water again. You will have to pay the interest that accrues during this time, but having a break for a couple of months can help you get back on track.
Don’t: Ignore it.
Ignoring your student debt is not an option. It will not be forgiven, even if you declare bankruptcy.
Do: Try debt consolidation
Consolidating your loans is a great way to get a handle on your debt. If you have federal student loans you can consolidate them into Federal Direct Loans, which can help get you on a repayment plan. Income-driven repayment plans will look at how much money you make and determine how much you can repay. This will also extend your repayment period to 20 or 25 years. At the end of this time period if you have not repaid your balance in full, the remainder will be forgiven. A Direct Loan also may qualify you for additional benefits, such as student loan forgiveness after the completion of 120 payments (10 years).
How can we fix student loan debt?
The Biden Administration’s plan for student loan forgiveness was blocked by the Supreme Court in June 2023, dashing the hopes of many for relief. But ultimately the solution to student loan debt lies with the cost of college. There are many reasons for the increase in cost, and many of these reasons are hotly debated. But according to the Bipartisan Policy Center and other researchers there are several steps that can be taken to make college more affordable (and therefore reduce future student loan debt).
- Incentivize states to invest in higher education.
- Create grant programs to fill in the gaps of education funding.
- Mandate more transparency on the real costs of college.
- Accreditation of new institutions to create a more competitive landscape.
Opening the playing field to new institutions will hopefully increase the competition and create a more accessible education system.
That’s everything you need to know about student loan debt and how you can make your monthly payments.
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