Student Loans: They’re Real and Carry Real Responsibilities

by Spero Financial

Let’s be real for a moment. Student loans are real and come with real responsibilities.  

According to Forbes, more than half of students leave college with student loan debt. Across the U.S. there is a total of over $1.75 trillion in student loan debt. It’s no surprise that student loan debt is high across the nation considering the rising price tag of higher education. From 1980 to 2020, there was a 180% increase in the cost to attend a four-year college full time. 

With a mountain of debt this staggering, it’s no surprise that student loans have been a hot topic in the media over the past few years. This became even more prominent when the Federal Government put a pause on student debt interest accrual and repayments in response to the COVID-19 pandemic in March of 2020. Since then, relief measures were extended nine times and new loan forgiveness programs have been announced for certain borrowers – leaving other borrowers on the edge to hear if their federal student loan will be forgiven as well. 

According to the U.S. Department of Education, when federal student loan repayment resumed in October 2023, 40% of borrowers missed their first payment. 

With this uncertainty, it’s no surprise that borrowers are feeling a range of emotions and are in many different buckets regarding their student loans. Some feel fear and anxiety surrounding the added pressure of a high monthly payment. Some feel under-prepared to take on payments after experiencing relief for a long period. Some wonder if they even need to make student loan repayment a priority. While others feel fully prepared to pay down their student debt and become debt free. 

Whatever boat you’re in, we see you and understand just how big of a role a student loan can play in our lives— and not just financially but in all areas! In this article, we’ll explore the importance of fulfilling student loan obligations and some possible strategies to consider for your personal student loan journey.  

Student loans carry real responsibilities. If you find yourself wondering, “What will happen if I don’t pay my student loans?” consider these impacts:

Student loans are just like any other loan or type of credit— failing to make payments on time can negatively affect your credit score, as your loan servicer will report late payments to the credit bureaus. This could have significant ramifications for your future financial goals and aspirations. Your credit score not only affects your ability to buy a house, buy a car, or get another type of loan, but it can also affect your ability to get a job and be approved for leases— among other things. On the flipside, making your student loan payments on time can positively affect your credit score and your credit report!

If you fail to make payments on your student loans, lenders can garnish or withhold up to 25% of your wages depending on if it is private or federal student loan. Wage garnishment is a court order through which a person’s earnings are withheld by their employer to pay a debt. This can obviously have a big impact on your income. In addition, for federal student loans, the government may also collect for your loans via tax refunds or other government payments.

Unpaid student loans may incur late fees or past due fees. These vary between federal and private loan servicers with private loan servicers having more flexibility in setting their own fees— whether flat or percentage based. Either way, late fees only increase the total amount you will end up having to pay back.

While it can be overwhelming, we recommend taking time to evaluate your options and come up with a game plan for your student loans. This looks different for everyone, and there are many routes to consider. Start by doing an honest assessment of your current financial situation, and then, consider how any of the strategies below might fit into your student loan repayment game plan.

If you’ve done an assessment of your finances and have found that the minimum payments for your federal student loans stretches just beyond your ability to fit it within your budget, consider applying for an income driven repayment plan. While many private loan servicers don’t offer alternative repayment plans, federal loans do and there are many different plans to explore.  

Through these payment plans, your monthly payment is limited to a certain percentage of your income and is based on many factors. While these plans may slow the time it takes for loan repayment and cause you to pay more interest over time, they may be a good option to help balance your budget in your current situation.

If you assessed your finances and found that you’re completely unable to make any payment towards your student loans, you may consider exploring deferment or forbearance. These options often require proof of a qualifying event of hardship. While these options won’t allow you to pay off your debt faster, they do provide relief from the negative credit impact that not paying your payment would typically have. 

Keep in mind that guidelines for federal and private student loan services vary so if you have private student loans, deferment and forbearance may have different requirements and/or may not be offered in the same way that federal student loan servicers offer them.

Refinancing or consolidating your student debt could be a strategy to help you pay your debt down quicker! Refinancing could help you get a lower interest rate on your loans and possibly save you a lot in interest. While this isn’t the right choice for everyone, it might be worth considering especially if you have multiple loans that have a range of interest rates or loans that carry variable interest rates.

If you’ve assessed your finances and found that you do have a surplus of capacity to pay your student loans, consider exploring the possibility of paying more towards your loan each month. Paying more toward the principal will help chip away at your debt faster and reduces the total amount you’ll end up paying in interest over time.

The climate surrounding student loans can be confusing and overwhelming. Taking time to do an honest assessment of your finances and to come up with a game plan to tackle your student loans might just help you move beyond feeling overwhelmed and instead, empowered in your financial journey. Always remember, we’re here to help! Schedule an appointment with a Certified Financial Counselor or visit one of our branch locations today.

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