Think credit card debt is out of control? Think again. According to a recent article in The Wall Street Journal, student loan debt has now surpassed credit card debt by over $3 billion. That means that more money is being spent on student loans than on credit cards every year.
Many college students convince themselves that student loans are “good” debt because they are furthering their education. They tell themselves that they will earn more money and pay off the loans sooner because they have a college degree. Sadly, most students who sign on the dotted loan line don’t realize the consequences of their decisions. And student loans are currently at an all-time high with a total of $830 billion!
According to Jim King, Vice President of Dave Ramsey’s school curriculum, “One result of the recession has been a more budget-conscious culture. In general, people aren't racking up their credit cards at the same rate or buying homes they can't afford. Unfortunately, that same attitude is not being applied to a college education.”
While people who obtain too much credit card debt can file bankruptcy and those who can’t afford their mortgage can turn to foreclosure, individuals with overwhelming student loans are stuck with their debt. And once a collection agency gets involved, it is nearly impossible to ditch or lower a student loan. Currently, only about 40% of student loan debt is being repaid. The remaining unpaid student loan debt is in default or deferment.
Student loans are rarely discharged in a bankruptcy due to different repayment terms. If a borrower misses a payment, this could lead to heavy financial consequences for them or for any family members who may have co-signed the loan.
“More than ever, people see a greater need for higher education, but do not consider the steep consequences of going into extensive debt to obtain that degree. Students are taught that student loans are good debt, an investment in themselves. The fact is, student loan debt can be even more dangerous than credit card debt and needs to be treated with the same caution,” warned Jim.
The scary thing is individuals who have both credit card debt and student loans are more likely to pay off the credit cards first, since they carry a higher interest rate. Instead of figuring out a way to make minimum payments with all the debt, people are starting to ignore the student loans and focus only on their other debts. Despite the low interest rate on student loans, it can still hurt you in the long run to not pay anything toward those loans.
With tuition continuing to rise, the amount of student loan debt will only continue to grow. Sadly, people continue to borrow money in order to attend college, not even thinking about alternative ways to go to college without the debt.
Since the recession, credit card debt has decreased because people are cutting their spending habits. Isn’t it time we start finding ways to control the student loan debt as well?
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