Nowadays college fees are increasing with the increasing levels of inflation making college a costly affair. Most students cannot afford to pay for their education which brings about the need to borrow (Smith and Barboza 2013). Student loans have grown higher than auto, home equity, and credit card loans all combined. They are also not being repaid, and their interest keeps on accumulating since the job market after graduation is not an easy one. This means that they cannot be able to service these loans.
The primary reason for the rising debt is that students are making poor borrowing decisions by borrowing for the wrong reasons and from the wrong places. They are getting private loans which are very expensive and borrowing to fund costly lifestyles which are not necessary (Xiao, Tang, Serido & Shim 2011). The pressure to conform and live in a particular class is hurting students. Their debts are accumulating with every cent borrowed which is greatly impeding on their futures.
Future Impact of College Debt Accumulation
A household with a high student debt cannot accumulate higher savings. According to Houle and Warner (2017), in getting mortgages and making investments, they cannot keep up with debt-free households since their incomes cannot allow them to put up several payments. This gap is brought about by the need to service the student loan debts as a priority, and thus all other things fall back. As a result, graduates with debts will fall behind their peers. Job mobility and flexibility is also limited since one cannot stay without a job for a while because the loans will just keep on rising (Xiao et al. 2011).
Debts slow down development in life, and as a result, graduates with debts take longer to grow and develop in life. These delays bring about late marriages and late property accumulation (Elliot et al. 2015).
Graduating from College with Minimal Debt
Before a student gets into college, it is vital that he/she starts saving. The more a student saves, the fewer the reasons he/she will have for borrowing. Savings also earn interest as opposed to borrowing for which interest is paid (Hogan et al. 2013).
Scholarships should be sought to pay for college fees. According to Houle and Warner (2017), there are several sites and colleges that offer scholarships even after a student has begun schooling. In some cases, scholarships can be exchanged for debts decreasing what a student owes and allowing them to save some money.
Getting into a state college will also reduce the fees a student should pay towards their education. Fancy and big colleges charge higher fees than government colleges. As a cheaper option, one can start at a community college to do the core units and later on enroll in a university for a four-year course later on (Brown et al., 2016). The downside of this is that a Bachelors degree might not be attained in this way since most universities and colleges do not allow this kind of arrangement. It is thus necessary to see out colleges that allow for this. Getting financial aid in school can also help reduce borrowing too. However, a student needs to ensure that the college they enroll in has a no-loans policy on financial aid (Hogan et al. 2013).
Buying used books on websites such as Amazon can significantly reduce the costs of learning materials enabling a student to save some money. A student can also live at home. Living off campus can be very expensive especially if a student is financing this from student loans (Hogan et al. 2013). A student should be able to look for paid internships to help make some more money. This money can be used for expenses that could have otherwise been paid from student loans.
If a student has to borrow, it is essential to borrow federal loans (Smith & Barboza 2013). These are cheaper and have a flexible repayment period. Their interest rates are fixed compared to private ones whose interest might keep increasing over time. Federal loans offer income-based repayments and can be forgiven which is indicated in the public service loan policy. State loan interest rates can also be reduced when a holder gets into public service jobs, and the debt can be forgiven after working for ten years.
Managing Credit Card Debt
It is essential for students to keep track of credit cards by continually reviewing their statements (Peltier, Dahl, & Schibrowsy 2016). It is also crucial to have a cap on the spending limit so as not to get into a mountain of debt.
The student should also avoid having several credit cards at a time. Too many cards can hurt a persons credit score. Since credit card applications come as hard inquiries, too many inquiries push the credit scores lower (Peltier et al. 2016). As a result, this can affect one's overall borrowing ability in the future.
A student can also have a credit card from his/ her parents account to allow the parent monitor spending and help control it. This is better than the student having his/her credit card because this will lead to unsupervised spending.
According to Lin, Hsiao & Yeh (2017), it is important to create the right combination of insurance policies to ensure total financial protection. Insurance can help in various aspects such as savings, security, and wealth creation. Health insurance guarantees financial protection for a person and his/her dependents in the event of sickness. Sickness in an unforeseen event in most cases and might happen when an individual is completely unprepared.
Life insurance protects from unplanned and unforeseen events in life for example death and permanent disability. A life insurance plan is very affordable, and since it is paid over a period hence, the financial contributions are rarely felt. To avoid financial shocks during unfortunate events, it is good always to be prepared (Lin et al. 2017).
As a student, I need to make sound financial decisions which include borrowing wisely. I also need to watch my expenditure and reduce it where I can. For instance, I live at home, and this enables me to save the money I would otherwise use to pay my rent. Since I have a student loan, I will be servicing it as I move on with my studies to help reduce the total debt. As part of my studies, I intend to look for a paid internship to enable me earn some money. The partial payments to my loan will be made from my earnings at the internship and small part-time job if I can manage to get one. Since I have a federal loan that allows flexible payments, I will pay this money monthly. I must admit that I did not know much about insurance, but I need to have some form of financial security for my future. So I am also planning to take some insurance policies to cushion me financially in the future. Since my student loan is quite big and I will probably be paying it even after I graduate, I will take up insurance covers that will likely mature in a few years. If they mature before I finish my loans, this money will go to offsetting some amount from my student loans.
Brown, M., Grigsby, J., van der Klaauw, W., Wen, J., & Zafar, B. (2016). Financial education and the debt behavior of the young. The Review of Financial Studies, 29 (9), 2490-2522.
Elliott, W., & Lewis, M. (2015). Student Debt Effects on Financial WellBeing: Research and Policy Implications. Journal of Economic Surveys, 29 (4), 614-636.
Hogan, E., Bryant, S., & Overymyer-Day, L. (2013). Relationships between college students' credit card debt, undesirable academic behaviors and cognitions, and academic performance. College Student Journal, 47 (1), 102-112
Houle, J. N., & Warner, C. (2017). Into the red and back to the nest? Student debt, college completion, and returning to the parental home among young adults. Sociology of Education, 90 (1), 89-108.
Lin, C., Hsiao, Y. J., & Yeh, C. Y. (2017)). Financial literacy, financial advisors, and information sources on demand for life insurance, Pacific-Basin Finance journal, 43, 218-237.Peltier, J. W., Dahl, A. J., & Schibrowsky, J. E. (2016). Sequential loss of self-control: Exploring the antecedents and consequences of student credit card debt. Journal of Financial Services Marketing, 21 (3), 167-181
Smith, C., & Barboza, G. A. (2013). The role of trans-generational financial knowledge and self-reported financial literacy on borrowing practices and debt accumulation of college students.Xiao, J. J., Tang, C., Serido, J., & Shim, S. (2011). Antecedents and consequences of risky credit behavior among college students: Application and extension of the theory of planned behavior. Journal of college students.
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