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January 24, 2013 | 12:00 a.m. CST
It’s an issue facing about two-thirds of bachelor’s degree recipients, according to the Department of Education — the increasing weight of student loans. According to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, student loan debt now stands at $956 billion. That’s a 20-percent rate of increase in the past year. Statistics show that the rate of delinquency on these loans is also increasing.
The problem is that student loans can be fairly easy to secure, but they stick with a student, even if they declare bankruptcy. The weight of student loans is also being blamed for issues in the homeowner’s market because college graduates are focused on paying for their last four years instead of future homes.
Nick Prewett, the director of student financial aid at the University of Missouri, has some advice for college students who want to stay on top of their finances. He says a lot of students apply for the maximum amount every time, but many students don’t need to take out that much. However, he says the average student loan debt for undergraduates at MU is about $21,000, comparable to a new car.
What should someone consider before taking out a student loan?
Know your needs. Only borrow as much as you need.
Student loan debt is approaching $1 trillion in the U.S. Why do you think that number is so high? What are the long-term consequences of this?
The average amount students are taking out hasn’t increased, just more students are taking out loans due to declining state support at higher education institutions. If students don’t pay off their loans, their credit is affected, they would have federal tax refunds docked and social security docked.
What options do students have after graduation if they can’t begin making payments?
There’s a new program the U.S. Department of Education just started called “Pay As You earn.” Ten percent of discretionary income will go toward student loans.
Should students pay off loans early or spread out the payments?
It really depends on a student’s situation. They want you to focus on the loans with the higher interest rates.
What is the student debt situation like at Mizzou?
At the University of Missouri, default rates are very low compared to other institutions. Our rate is about 3.1 percent, and the national rate is about 10.2 percent. When you look at the national average, you’re including community colleges and proprietary institutions. It comes down to the ability of students to repay the loans.
What general advice do you have for students and their finances?
Skipping a Starbucks latte on a regular basis. Really, just being cognizant of how much they’re spending. We talk about the meeting with the office of financial aid as one resource. Also to take a basic budgeting or personal finance class on campus.
How can a student prepare to pay off debt while still in college?
Institutions are focusing on financial literacy. We have the office of financial Success, for example. Students should make sure they talk to the Financial Aid Office about what their needs are. It’s better to get involved earlier.
We’re doing more outreach, going over total loan debt just to help them prepare for paying for their education. Students are encouraged just to have that conversation about how much debt they have. We’re going to take a look at what their career path is going to be, how much loan debt they have and how much they need to take out as far as their projected income.
Do you see the amount of student loans increasing in the future?
As costs continue to rise, students and families need to find ways [to pay for their education], and student loans help to make up that difference between costs and what their resources are.