12 min read
The student loan crisis was caused by the government’s involvement with the banks. When the government bailed out the banks after the financial collapse in 2008, they created a situation where the taxpayers had to pay back the loans. Unfortunately, at the time, students could not afford to repay their debt since they were still struggling to find a job. As a result, over two million people have been forced to default on these loans, putting them in a cycle of poverty that they cannot get out of. In fact, the average student now owes $37,000! That means that the interest alone adds up to almost three times the original amount.
The way to break this cycle is to stop giving money to the banks instead of the students. By taking away the incentive to lend money, we would force the banks to make more reasonable rates and terms to borrowers. More importantly, if the banks do not make any profit off of the loans, then they don’t have an incentive to give out loans to anyone. This would help prevent the student loan crisis from ever happening again.
How student loans work
In the United States, federal student loans are issued by the U.S. Department of Education and administered by private lenders. Lenders issue federally guaranteed Stafford Subsidized Loans (direct subsidized) and Direct Unsubsidized Loans (unsubsidized). Private non-profit institutions provide Federal Family Educational Loan (FFEL) Programs, while banks have authority over direct PLUS Loans. Under current regulations, students may borrow any amount up to their cost of attendance minus financial aid awards. A borrower’s eligibility for loan forgiveness after completing repayment varies based on income level and program type. The interest rate on these loans is determined by the annual percentage yield on Treasury securities. If borrowers miss payments on their loans, they can incur additional fees and possibly default. Defaulting can affect future borrowing options, including being denied access to credit markets.
Student loans as debt
Loan programs generally offer lower interest rates than credit cards, but that does not mean that student loans are always a good deal. Many people take out student loans for educational expenses, like tuition and books, rather than paying cash. However, those who opt not to pay for school with cash often end up owing thousands more at graduation. In fact, according to data from the Consumer Financial Protection Bureau, about half of all student loans held in 2004 were currently delinquent or past due. While some student loans are now eligible for deferment or forbearance, others must be repaid under certain circumstances. Borrowers should consider whether they need the money immediately, how much interest they would pay if they borrowed elsewhere, and what the effect of deferred payment will be on their chances for future job opportunities. Repayment plans vary depending upon the lender, but most allow partial monthly payments for five years or more.
What to do with your student loans
According to a recent study conducted by Northwestern Mutual, Americans owe $1 trillion in student loans. Most consumers feel trapped by the high cost of education. Students often find themselves drowning in debt even after obtaining degrees or certificates. To avoid student loan woes, borrowers can apply for consolidation or deferral and use free online tools to calculate the best repayment plan. One way to reduce debt, however, is to earn higher incomes.
Bankruptcy is typically not recommended until all debts have been paid off. It is designed for individuals facing extreme financial hardship. Those filing bankruptcy typically have few assets and little potential earning power. Still, many borrowers claim to have no choice but to file for Chapter 13 relief because they cannot afford to repay their debts. This is known as “wage garnishment,” since it involves taking wages earned from a person’s employment.
Credit card debt
Credit cards are marketed to consumers as a method of funding purchases, but many people find themselves unable to make timely payments. According to a 2008 survey released by the Center for Responsible Lending, nearly 30 percent of American households carry credit card balances. While credit card companies offer low introductory rates, the average balance accrued is more than 15 times the original purchase price, meaning individuals could spend decades repaying their debts. Cardholders who fall behind can face steep penalties and possible loss of access to credit.
Debt management plans
Debt management plans are services offered by third parties that consolidate credit card bills. Through automatic bill splitting, creditors share the costs across multiple accounts, reducing interest charges. By combining outstanding obligations from different sources, debt management plans help borrowers manage their finances more efficiently.
Free debt counseling
The U.S. government offers free counseling via nonprofit entities called credit repair organizations. These groups offer legal advice and guidance on how to improve a consumer’s credit score. However, they do not negotiate with creditors. Instead, they seek to remove inaccurate information from a credit report without actually changing any account details.
Student Loans From Banks
Student loans have become a major problem for students in higher education across the United States. In fact, student loan debt now exceeds credit card and auto loan debt combined. According to Federal Reserve Bank data, total outstanding student loan debt at the end of 2011 reached $945 billion — that’s nearly $30,000 per graduating high school senior. If you add private student loans to federal loans, the number shoots even higher. What makes this statistic even scarier is that many graduates cannot afford to pay back their loans once they graduate.
More than 12 million Americans hold some type of student loan, according to the New York Fed, and between 2008 and 2010 alone, average college tuition rose by 22 percent, according to the College Board. This means many graduates are carrying heavy debts while facing stagnant wages, making it harder to repay their loans without taking on further debt.
Private student loan debt has grown steadily over the last decade, rising from just under $150 billion in 2003 to more than $260 billion today. While public universities receive significant funding from state governments, private schools rely heavily on student loans to cover costs. As private lending becomes increasingly popular, the number of people who take out these loans grows each year.
In 2009, 18 percent of college graduates had student loan debt; ten years later that number jumped to 24 percent. And while the number of students borrowing money has increased, the amount borrowed has not kept pace. Average debt among borrowers rose from about $19,000 in 2007 to nearly $26,000 in 2012.
A third of recent grads don’t graduate due to financial reasons. Many students borrow money to finance their educations, putting themselves at risk of defaulting on their loans if they cannot begin earning income immediately upon graduation. At the same time, many graduates experience difficulty finding jobs after college, especially those in fields where employers need advanced degrees.
When students do find work, the pay may not be enough to handle payments on both student loans and other bills. In 2013, the median annual salary for a bachelor’s degree holder was around $50,000. However, the Bureau of Labor Statistics reports that median earnings for a master’s degree holder were slightly lower at around $44,000.
Students who borrow money often use this money to finance luxury items, including cars, homes, and vacations. Borrowers also often spend their loans on entertainment, dining out, and shopping sprees. These expenses can take a toll on a borrower’s finances and make it difficult to maintain a standard of living once the student loans have been repaid.
Graduates in certain majors are more likely to struggle to repay their student loans, particularly those studying business, law, and medicine. Business and law students are generally exposed to larger amounts of debt, since many attend four-year colleges that charge significantly more than community colleges.
The cost of medical school is also extremely expensive, leaving many graduates saddled with thousands of dollars in debt. Over 50 percent of medical school graduates took on debt to finish their studies, compared to 40 percent of dentists and 38 percent of veterinarians.
Public and private loan forgiveness programs exist to help borrowers struggling to repay their loans. But these programs are only open to specific groups of people based on factors like income and employment history. So borrowers trying to qualify for the programs may face lengthy waiting lists and bureaucratic hoops to jump through.
Private loan forgiveness programs are offered by companies like Sallie Mae, Navient (formerly known as Nelnet), and Cosign. These companies have set standards for eligibility requirements, including minimum monthly payments, repayment history, and job stability.
Public loan forgiveness programs are offered directly by the U.S. Department of Education and vary depending on the types of loans held. Loan forgiveness programs for government-backed Stafford and PLUS loans are available to borrowers who’ve had their loans for at least 10 years and paid them off entirely.
Since interest rates for student loans vary widely, borrowers should shop around for the best deal before signing any agreements. Interest rates for subsidized Stafford loans and federally backed Parent Plus loans range from 0% to 6.8%. Rates for unsubsidized Stafford loans start at 5.31%, ranging up to 6.21% for loans issued after July 1, 2014.
For private loans, interest rates fluctuate greatly depending on the lender. The New York Fed reported that average interest rates for private loans were 8.47% for the first semester of 2015.
Student Loans From Banks
1 – I am not taking out student loans
I have no desire to take out any type of loan to finance my college education because I would rather pay for everything myself. I don’t need to borrow money from anyone for anything. I work hard at making sure my future is secure before I even start school, and paying off debt now is the only way to do that.
2 – I am going to pay them back
I know some people who choose to use their student loans as a credit card or get behind on payments so they won’t have to worry about having to repay them while they’re still in school. That’s a terrible idea. You should never ever let someone else pay for your schooling, especially a bank. If you want to get a degree then you should pay for it yourself, otherwise you’ll end up owing tens of thousands of dollars later in life.
-3 – Do you think banks care?
When you apply for a bank account, the first thing that happens is that you fill out a bunch of paperwork, including questions about where you live, how old you are, and why you want the account. Before deciding whether or not to give you business, the bank looks at these documents and decides if they want to offer you an account. Once you receive the account, you agree to follow certain rules established by the bank, and those rules could include things like keeping track of your spending, being responsible with your finances, and using the bank wisely. When you sign up for and open a bank account, you become a customer of that bank, which means that the bank cares about you. In fact, it actually does care about its customers, and it shows. Not only will the bank try to make you happy, but it will also keep your information safe, help you manage your money well, and provide helpful services to you if you need it.
4 – Why did they get rid of direct deposits?
One of the reasons why banks decided to eliminate direct deposit was due to high fees. However, this decision could potentially hurt students’ financial situations. Banks charge a fee called “transaction costs,” which includes something like a service fee, a maintenance fee, and any additional charges that might appear on your statement. There is a possibility that transaction costs could add up after several years of receiving statements. This would mean that you’d have to wait until after the graduation ceremony to find out what your final total bill is. Even worse, some banks automatically deduct transaction costs from your direct deposit checks, meaning that you wouldn’t even realize just how much those fees had added up.
5 – Will they really stop sending me bills?
It may seem like a good idea to close your checking account once your student loan has been paid off. But this doesn’t exactly happen. Instead, your bank will simply send you monthly statements instead of a check each month. So, you’ll probably see a lot of bills in your mailbox. While it’s true that you won’t have to deal with a bunch of envelopes filled with paper every single month, bills still show up in the mail. Plus, if your bank closes down, you’ll lose access to online banking, debit cards, mobile banking, and ATM withdrawals. And, even though you might be able to set up automatic payments, having an automatic payment in place isn’t always enough to prevent overdraft fees.
-You can avoid this scenario by closing your account.
The best way to ensure that your student loan ends up getting paid is to close your account once your balance reaches zero. As long as you keep a small amount of cash in your account to cover your daily expenses, you shouldn’t experience any problems. Closing your account will put you in control of your own finances again, which is how you should leave things.
Student Loans From Banks
Student loans are great if you need money right now, but they can cause a lot of problems later on. The reason why student loans are good is because they allow people to get higher paying jobs with lower interest rates. But what happens when you graduate? You have to pay back the loan plus interest and sometimes even have to make payments until you’re 60 years old! That’s a long time to be paying off something you don’t even own yet. To avoid these problems (and others) look at our video guide on how to choose the best student loan!
If you want to work towards being paid well in the future then you should consider getting a high-paying job instead. High-paying jobs mean low interest rates and less pressure to repay the loan. Also, having a good job means you’ll likely save up enough money to cover any debt after graduating. So in order to do well financially, you need both a good job and a good education.
Another way to avoid student loan debt is to find scholarships for college, especially if you plan to major in STEM fields. A scholarship is financial aid given to students who merit it, either based on their family income or academic record or some combination of the two. Scholarships are free money and can help you pay for school without taking out loans. Find out if your school offers scholarships, and apply for them. You may just end up finding a better deal using your scholarship funds than borrowing could ever offer.
Don’t take out too much debt, no matter what you borrow. Just because a bank gives you $20,000 to start your business doesn’t mean you should go crazy spending it all. Start slow; only borrow what you need, not going overboard. When you do need to raise capital, look for loans from alternative lenders, friends, and relatives, rather than banks. Getting a loan from a friend or relative is almost always cheaper for everyone involved.
Remember that private student loans are different from federal ones. Private loans tend to carry larger fees and interest rates while federal loans tend to be more flexible. Federal loans might also have better repayment options. Either way, be sure to read everything before signing anything. If you don’t understand something, ask someone to explain it to you before you sign.
Make extra money doing side hustles! Get paid for things you already enjoy, like listening to music, watching YouTube videos, playing games, etc. Those hobbies could earn you thousands per year and will never require you to leave your house. Use an app like Swagbucks, Ebates, or Google Play gift cards to cash out.
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Join social media sites like Facebook and Twitter. Share information about yourself, services you provide, and content you produce, and use the traffic return links to increase your site’s ranking on search engines like Google and Bing.
Take surveys. Companies pay survey takers pennies per task, and many of those companies will give you points for each survey you complete. All you have to do is visit websites like UserTesting.com and fill out a questionnaire. You can earn anywhere from 100 to 5,000+ points per test depending on the company and duration of the test. And the best part is you don’t even have to leave your couch.
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