Student Loans: Where Are We Now?
According to a piece by Time Magazine in the summer of 2019, 44 million Americans are currently drowning in student loan debt. The number at that time was an unfathomable $1.5 trillion. So what does this mean for literally everyone? There are a lucky few, of course, who were able to fund higher education through other means, but not a lot of people escaped that fate. And regardless of feelings on student debt reform, as financial professionals, we have to consider the impact of this crisis on everything from personal savings to buying a home. Where are we now with student loans and what can be done?
The Current Statistics
Student loan debt is astronomical right now. The current statistics, according to this article in Forbes, is $1.6 trillion dollars. 45 million people in the U.S. are burdened with student debt and the average 2018 graduate left school with just shy of $30,000 of student loans to pay back. Currently, that number sits at $32,000. It’s also important to note that the average student loan payment is over $300. And the current interest rate in 2020 for federal student loans is 4.53%.
Types of Student Loans
There are various types of student loans as well, both federal programs and private ones.
The federal student loan types include:
- Direct subsidized loan
- Direct Unsubsidized loan
- Perkins loans
- PLUS loans
Private loans include:
- Bar exam loans
- International student loans
- Medical student loans
- Student loans for bad credit
- Student loans without a cosigner
- State loans
- Credit union loans
If you want to know more about these specific types of loans, we encourage you to check out this article from NerdWallet.
How to Pay Off Student Loans
Having student loans is one thing, but paying them off can be more difficult. Not every graduate is going to get into a high paying job immediately out of college, but everyone will need to start paying their loans after they leave school. So what can you do to pay loans off faster or more efficiently?
There are various strategies that could give you an extra push to pay off your student loans sooner than later. The implications of this are promising as you will be more prepared for other savings and perhaps even buy a home without the looming student debt.
You can sign up for automatic payments, which can give you a discounted rate each month. If you can pay more each month, make sure your lender knows that you want to apply that to your principal. If you have several loans, focus on one at a time. If you have a steady job, you may also want to look into refinancing your loan.
How to Get a Mortgage with Student Loan Debt
The big question most people have is whether they can qualify for a mortgage with student debt. There are a few things you can do to improve your chances of buying a home in Asheville.
- Improve your credit score: Be sure to pay your bills on time and work on paying off any additional debt. Keep your credit card balances low and don’t close accounts that you’ve paid off. Don’t apply for new credit because the inquiries will affect your credit score.
- Manage debt to income ratio: This is the amount of debt you have in relation to your monthly gross income. Whatever you pay towards your debts, including your student loans, can be added together to come up with your ratio. Divide your total monthly debt payments by your monthly income before taxes. Multiply by 100 to get the percentage. Mortgage lenders will look at this number to determine if you’re qualified for a loan.
- Get Prequalified: Even with student debt, you need to get preapproved for a loan. An independent mortgage lender can work with you to determine how you can be financed for buying your next Asheville home.
- Consider down payment options: You also want to discuss down payment options with your lender. There are programs that can help you with down payment assistance, especially for first-time homebuyers. Federal programs may work for you, too.
Are There Ways to Avoid this Crisis?
The big question for a lot of people is how to avoid the student loan crisis at all. It’s hard to do in our current political and economic climate, but not impossible. Of course, it’s best if this kind of heavy debt can be avoided altogether. If you’re thinking about going to school for the first time, going back to school, or you have older children getting ready for college, consider your alternatives.
Grants and scholarships are available to students who qualify, so always look into the options. Military programs may also be the right fit for some people. If you’re a working professional, you may also qualify for employer tuition reimbursement. Shopping around for the right college program with the lowest tuition costs may also be a great idea. Reducing expenses, such as living expenses and transportation costs, can also help lower the overall cost of education.
Talking with an independent mortgage lender, like GoPrime of West Asheville, can give you more insight on your prospects for owning a home in the area. Feel free to send us a message or call us.
