BEWARE: The Effects of Financial Aid On Your Life After Graduation
Although financial aid for students comes in the form of scholarships, grants and loans, about 60 percent of all students borrow money for college and that takes a toll on their lives after graduation.
More than 37 million Americans in 2012 owed more than $1.1 trillion in student loan obligations. The majority of those loans were owed to the federal government and about 15 percent to private lenders. Meanwhile, the average graduate leaves school with $27,253 in total debt.
The Harsh Reality of Repayment
As the economy struggles to lift itself slowly out of the Great Recession, more and more student loan borrowers are finding it difficult to make enough money to cover their personal expenses and pay off their educational loans. As of last year, more than half of recent college graduates were unemployed, so it's no wonder that approximately 850,000 debtors have already defaulted on $85 million worth of student loan debts.
The truth may be harsh, but it is nonetheless obvious: Borrowing money is always easier than paying it back. Understanding how your financial aid will affect your life after graduation has never been more important than it is today—especially if you want to begin your post-college life with any chance of creating a firm economic foundation on which to build your future.
The Ramifications of Your Borrowed Student Loans
The first step in understanding the ramifications of your student loan borrowing will come during the mandatory exit counseling session you are required to take prior to graduation. In the course of the session, you will be made aware of your rights and responsibilities regarding the particulars of the student loan programs. You will also receive a detailed listing of your loans, information about different repayment options, and tips for managing your debt.
If you hadn't already realized it before, how you intend to repay your student loans over the next 10 years or more is going to be a major part of all your financial planning and budgeting decisions.
Don't believe me? Let's do some simple math. First, we'll suppose that you're just beginning your college career. Based on recent statistics, it's not out of the question to assume that over the course of four years of school, you will borrow a total of $30,000.
For example, if you are a recipient of the federal government's Stafford Loan program this year, the interest rate on your loan will be 3.86 percent with an added loan origination fee of 1%.
And When Interest Rates Come Into Play...
Now that Congress has tied federal student loan rates to the country's 10-year Treasury bill, we can also reasonably assume that your interest rates will rise somewhat over the ensuing three years. In an effort to simplify matters, we'll just say that you will wind up paying 6 percent on your $30,000 after your post-graduation, six-month grace period ends.
In order to retire your loan via the standard 10-year repayment scheme, you will have to pay your student loan lenders $321.41 per month. Total interest paid over the decade: $8,569.30. Now let's also suppose that you are lucky enough to land a job right out of college That means that you will need figure out the percentage of your earnings to set aside each and every month until you are in your early thirties.
Naturally, if you can't afford to devote that much of your salary to paying off your student loans each month, you will not be able to meet the 10-year goal, in which case, the interest payments will continue to accrue, making it even more difficult to pay off your debt in a timely manner.
Whatever You Do, Don't Default
Now, let's also see what can happen if you should default on your student loans at any time during your adult life:
- You will be liable for the costs of trying to collect on your loan, including court costs and attorney's fees.
- You may be sued for the entire unpaid loan amount.
- Your credit report will take a negative hit, making it difficult for you to borrow money for a home, car, or other purchase.
In addition, if your loan was from the federal government:
- Your wages may be garnished.
- Your federal and state income tax refunds may be seized.
- Future Social Security benefits may be withheld.
As you can see, it is imperative that you understand that your student loan repayments cannot be ignored, put off, or wished away.
They also cannot be discharged via bankruptcy. Unless you qualify for any one of the federal government's loan forgiveness programs, they will follow you long after you've received your well-earned, but increasingly expensive, college diploma.
Are you ready to take on the ramifications and responsibilities of borrowed student loans once you graduate? Share with us in the comment box below!
Al Krulick is an award-winning journalist with dozens of years of writing experience. He writes and blogs for Debt.org. Join the conversation on our Facebook page. Also check out our sister site Annuity.org.
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