Having a Big Struggle as a Student Loan Borrower? Not knowing what you will need
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- From the exit student loans For his college education, writer Michael Arceneaux struggled to get paid back, owing about $ 800 a month in private student loans.
- His experience raises an important point regarding the student loan system: It is almost impossible for borrowers to understand what their eventual repayment might look like before or during the loan.
- With many student loan borrowers taking out loans in their late teens and early twenties, and without much financial education, taking out loans can be a big risk for borrowers.
- Her best advice for anyone considering borrowing is to gather more facts and tell others about their student loans.
- Learn more about obtaining or refinancing a student loan with CommonBond »
Writer Michael Arceneaux struggled with student loan debt since graduating from Howard University in Greater
. Since taking out a first student loan of $ 10,000 to cover his first year of college, he has dealt with his debts in collection and has struggled to cope with high monthly payments on more than $ 100,000 of private student loan debts.
In his book “I don’t want to die poor”, Arceneaux documents the ways in which student loans have affected his life. Like most Americans who graduated with debts incurred in their late teens and early twenties, Arceneaux did not know how much he would ultimately earn, or how much his loans would be each month. And, with many Americans in the same position, these experiences show a bigger problem in the way student loans are managed.
“After I graduated, I immediately owed nearly $ 800 a month in private loans, with 12 years to pay them off. That’s not counting the few hundred dollars I still pay each month in federal student loans.” , he writes in his book.
Borrowers can’t really estimate what they will owe when they take out loans
As college costs have increased over the past few years, student loans have become all too common. But, it appears that a major flaw in the system is that borrowers do not get enough information up front about what loans might cost and how they will add up. An online study of 2,007 millennials conducted by Business Insider Intelligence found that 27% of student loan borrowers did not understand the terms of their loans when they signed up.
Unlike the mortgage loan system, where borrowers are required to see the monthly payment before signing up for the loan, student loan borrowers do not have the same foresight. A 2014 analysis by the Brown Center for Education Policy at Brookings found that 14% of students surveyed who had federal student loans didn’t even know they had them. When asked about their loan balance, about 25% of borrowers could not accurately report their loan balance to less than $ 5,000 of the actual amount.
Although there are ways to calculate what you will need, the process can become more complicated as interest rates change between school years, with many different interest rates and loan types within the federal student loan program. Also, having private student loans in addition to federal loans can make calculating a total even more difficult. Take into account the uncertainty of the future over graduation dates and too frequent increases in tuition fees, and the result can be even more unreliable.
Without adequate financial education among young people, it is even more difficult for borrowers to navigate the student loan system. About 37% of those polled in the Business Insider Intelligence survey said they were self-taught on topics related to personal finance.
Borrowers are often blamed, but it’s not their fault
Often, borrowers – many of whom were teenagers when they began their journey with student loans – are accused of not understanding or misunderstanding student loans, Arceneaux writes. “Usually when someone tries to discuss their student loan debt, their judgment is called into question. How could I not understand the financial commitment I was making? ”
“I do not reject my responsibility for this,” writes Arceneaux. “But with a lot of other 17 and 18 year olds, when I went to college, I didn’t know anything about student loans or interest rates,” he writes.
For future student loan borrowers, this is not to reconsider the possibility of going to college – for many Americans, a college degree always comes with a correlation with higher net worth. Rather, it’s about protecting yourself with information in advance.
“Ask yourself if it’s really worth it,” Arceneaux told Business Insider via email. “Talking to people about money even if it’s uncomfortable. Asking people about the types of loans they have [and] how it impacted them. “