When the budget gets tight, most families look to the obvious sources to try to save money: high cable and internet bills, transportation costs, and luxuries like dining out and vacations, but cutting minor costs won’t get you far. No, in most cases, the best way to manage your finances is by addressing large debts, and a top offender is student loan debt.
Recent research shows that young adults hold an outsized amount of student loan debt with outstanding student loan debt amounting to $1.5 trillion and its one of the great crises of our time. In particular, student loan debt is depressing home ownership among millennials, with every added $1,000 of debt associated with a 1-2% drop in home ownership for borrowers in their late 20s and early 30s, the age of millennials today. Of course, home ownership isn’t the only problem – as a whole, young people saddled with large student loans feel like they’re at a disadvantage compared to peers without loans or when compared to prior generations’ smaller educational costs. And it’s left many people wondering if they’ll ever get out of debt.
Debt Holds Us Back
Debt prevents us from many enjoying many of life’s pleasures, from traveling to living independently or even owning a pet, but no one should resign themselves to a life in debt. If you’re trying to reduce your student loan debt, the first step is to look at where it’s held and consider different repayment plans. For example, some people suggest paying off your smallest debts first so that you can gain momentum and experience the satisfaction of eliminating even a small piece of what you owe. Many others, however, recommend paying off the debt with the highest APR. This approach can take a long time, depending on how large that piece is, but it’s also the piece that will accrue interest the most rapidly.
Be Realistic
Whatever approach to student debt repayment you choose, the most important thing is to be realistic because too many graduates already face unrealistic expectations. As many student borrowers described in interviews with Buzzfeed, older adults tend to believe that it’s easy to work around a student schedule, fail to recognize how much school costs have increased compared to wages and inflation, and – most frustratingly – that the job market is better for recent graduates than it is.
While a college degree once guaranteed a good job, today’s graduates are often expected to “pay dues” as unpaid interns or in minimum wage positions that won’t pay the rent on an apartment, never mind student loans.
It’s better to work toward a realistic student loan repayment goal than to let your loans go into default, but if your loans do go into default, you can get back on track. It will take some phone calls and some time, but especially if you’ve recently gone into default, your lender will set you up with a repayment plan that fits your income. It may take years to climb out of debt, but this isn’t forever, and you aren’t alone. Student loan is straining the finances of an entire generation, and that trend doesn’t look to be changing any time soon. In the face of this systemic problem, the only thing you can do is take charge of your own debts.