Post-secondary education is one of the biggest and earliest expenses that young adults face. Many students opt for student loans to ease the financial burden. However, this can come back to haunt you later on. Student loan debt continues to be a major source of stress for both graduates and non-graduates. These are the reasons why.
1. The Financial Hole
It’s very possible that you will begin your career in a financial hole. In fact, a significant number of graduates are not employed in their fields for quite some time upon finishing school. Without even considering the cost of student loan repayment, you have to consider:
- interest rates
- housing expenses
- various forms of insurance
- potentially other debts
Not only can you end up living paycheck to paycheck, but this type of budget scenario can leave a lot of people without any room to accumulate emergency savings or to even begin thinking about their eventual retirement.
Student loan terms can span decades. That’s an enormous commitment to make when your quality of life is at stake. To make matters worse, if you do fall behind on your repayment schedule, the government is allowed to garnish your wages and your tax refunds to recover that money. You’re essentially giving a lender free reign over your future earnings with very little protection for you as the borrower.
2. Student Loan Debt
You can’t get rid of student loans as easily as you can get rid of other debts. Bankruptcy is an option for discharging many types of debt once a borrower can show that they have met certain criteria. The case with student loan debt is that in the process of declaring bankruptcy, you would have to prove that the student loans are causing you some extreme financial hardship. The trouble with this is simply that in most cases, extreme hardship hinges completely on whether you can maintain a minimal standard of living. It’s important to understand what that standard of living looks like because when somebody dissects your finances to decide what you can afford and what you have out of luxury, you’d be surprised at what you can end up having to cut out.
Even if you end up at a point in your repayment term that some form of student loan forgiveness is an option, that doesn’t mean you’re off the hook. They may tax you on the forgiven amount. There are a lot of surprises that may catch you off guard while trying to eliminate student loan debt.
3. Your Credit Score
Student loan debt can severely impact your options for years. Your credit score is determined by a number of factors including your debt repayment history and your debt to income ratio. Student loans will directly affect your credit score by altering the ratio of how much money you owe and how much money you earn. This becomes an even bigger problem when you aren’t able to get the job you have your eyes set on.
If your income ends up lower than you hoped, while your loan payments are still astronomical, your debt to income ratio will be in bad shape. With a bad debt to income ratio or any delinquent payments, you’ll find yourself in a bind if you plan on applying for a mortgage or anything that requires decent credit. Additionally, there are employers who will do a credit check on candidates before hiring.
It’s no secret that debt can be a serious burden. The biggest reasons to avoid student loans stem from the potential to significantly alter the course of your future. Don’t begin your adult life underwater.
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