For the first time ever, the amount of student loans taken out has reached the $100 Billion mark. You read it right, “B”illion. According to USA Today, the amount that students are borrowing is twice as much as they were a decade ago, even after adjusting for inflation. The Federal Reserve Bank of New York is also reporting that Americans now owe more on student loans than credit card debt.
These are staggering statistics since student loan debt is not without risk and long term effects. The reason for the jump in borrowing? Many people affected by the stagnant job market are seeking retraining and new students entering school without the means to pay cash, looked to student loans as their only option.
But are they the best choice? As a household still paying on our student loans, I wouldn’t say they are. Here are a few long-term risks to consider:
Student Loans Follow You
No matter what financial situation you get into and heaven forbid you have to file for bankruptcy, a federal student loan never goes away. They are classified the same as the IRS and you will still have to repay the debt.
Delay of Big Ticket Purchases
When you owe Sallie Mae or Direct Loans for your education, those monthly payments can prevent you from making other purchases. Saving money for items such as a car, home, retirement or simply growing your savings is not as easily possible with the weight of student loans.
Less Freedom in Career Choices
If you owe $24,000 in student loans and have a $500+ payment each month, your career choices and freedom to follow your dreams can be limited. You have to factor that payment in with the rest of your monthly expenses and dreams of entrepreneurship or working freelance are dimmed with the overhead debt.
When considering a return to school or how to pay for your child’s education, get creative. Think realistically on how much you can afford and then research the options. Look into every possible grant, scholarship, and tuition reimbursement policies. Also, don’t forget the alternative of working your way through school and paying cash as you go, the benefit of working your way through college can pay dividends when seeking employment post-graduation. And finally, always consider buying “used” books.