It can be shocking to see news reports that the average student loan balance has increased from $18,550 in 2003 to $28,950 in 2013, with some students even owing more than $100,000. The cost of tuition has also increased significantly, as has the number of students who choose to take out loans to attend “for-profit” colleges, which usually come with a high price tag. Looking at this situation, it’s clear that the financial aid system in America could use some revising. But how does this affect debtors’ lives and ability to pay back the debt? Are the extremely high balances most crippling, or can even $5,000 of debt be a real problem?

 

High Balances

Studies from the Department of Education show that students with $5,000 or less of student loan debt are eight times more likely to default on their loans than those who owe $40,000 or more! This statistic can be puzzling, but after a closer look, it makes perfect sense. Students with high student loan balances typically have finished their program or even pursued advanced degrees. These degrees most likely result in lucrative careers that make paying off the debt manageable. Students with graduate or advanced degrees have a far higher lifetime income potential compared to those with high school diplomas, associate’s degrees, and bachelor’s degrees, for a relatively small increase in debt. So what about people who carry only a few thousand dollars of student loan debt? Why do they struggle so much?

Low Balances

 

People who have relatively low student loan debt balances are more likely to have dropped out of their program or pursued a short training program that didn’t result in a good paying job. So these consumers are carrying debt without the earning potential to back it up. It’s easy for them to feel stuck, especially if they have become delinquent on their loans. This can make it impossible to borrow more money to pursue their education, now that they’ve learned from their mistakes. This trickles into other areas of life, such as home ownership, as well.

So while the big numbers of debt are important, equally important are those who struggle to make ends meet with smaller amounts of debt.

 

Change is Coming

The next few years will be interesting as the government attempts to deal with the student debt crisis and explores options such as tuition-free college and loan forgiveness. If you’re currently struggling to keep up with your student loan payments, I’m here to help. I can share information with you about the various repayment programs available so that you can take care of your commitments while also building a financial future and taking care of your daily needs.

 

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