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Student Loan Debt #2

Woody Allen once said that when it comes to your financial situation, money is better than poverty, if only for financial reasons.

A good line, and one that is completely appropriate for the mindset of the student loan borrower. You know, the one who borrowed all that money to march off to college and study Shakespeare and shoot dice. The one who learned the Pythagorean Theory and how to pour the perfect mug of beer.

In other words, you.

The good news is that you’re not alone.

According to Heather Boshey, an economist at the U.S. Center for Economic and Policy Research, student loan debt is 85 percent higher for students in 2003 than it was for students who borrowed money in 1993. In her paper “The Debt Explosion Among College Graduates” Boshey reports that 1999-2000 college graduates owe more than their predecessors ever did. The numbers tell the story:

• On average, college graduates in 1999-2000 owed $15,000 in student loan debt compared to $8,200 for students who graduated in 1989-2000.

• Those figures rise when private, four-year college graduates are taken into account. Those graduates owed $16,500 on average in 1999-2000 compared to $10,600 in 1989-1990.

• Two-out-of three (67.9 percent) college graduates in 1999-2000 borrowed money for college, up from less than half 46.3 percent) in 1992/93.

Source: The Debt Explosion for College Graduates, Heather Boushey, March 2003

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The Cold, Harsh Reality of Student Loan Debt

The ramifications of all that debt are not pretty.

By and large, there’s no getting around the fact that you have to pay off your student loans. Such loans are rarely granted default status and none are ever abolished in bankruptcy situations. Then there is the credit report issue. If you don’t pay off your loan that can haunt you the rest of your life in the form of a bad credit report. And a bad credit report means no new car, no new home, and virtually no hope of ever borrowing money from creditors again. Think Hester Prynne in “The Scarlet Letter” and you get the idea. The only difference is that instead of that scarlet letter “A” for adultery that Prynne bore you’ll be wearing a metaphorical letter “D” for deadbeat until you can pay off your debt.

Besides, ignoring your college debts won’t make them go away. Instead, that will just make things worse. If you take the ostrich route and stick your head in the sand every time a loan statement arrives in the mail, you’re just staving off the inevitable. By not paying delaying, substantial costs – in the form of interest and penalties – could very well be added to your college loan bill.

Translated: Student loans are serious business.

That’s why knowing the particulars of your student loan -- account terms, timetables for payment, penalties, for example – is so crucial. Consequently, facing up to the significant responsibilities stemming from your student loan is the first step in paying them off.

The next step in freeing yourself from student loan debt is to craft a master plan or blueprint to work from as you pay your loan off. After all, you can’t manage your student loan debt unless you can manage your overall personal finances.

But to control your student loan debt, as in most other instances, you have to walk before you can run. That’s why knowing the financial basics – things like knowing the terms of your debt, crafting a household budget, understanding the machinations behind credit and debt, and the importance of eliminating “bad” debt – are so important to your student loan situation.

So, in the spirit of that “walk first, run second” mantra I’ve been prattling away about, it’s imperative that you have your everyday financial life in order. Tomorrow's blog is where to start.

Published Jan 03 2007, 08:16 PM by moneycoach
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