Sorry for the reminder, but—
A college graduation brings forth many changes: a crisp cardstock diploma; freedom from stifling academia; a new job, for the lucky ones; and a duty to pay student loans.
This is something repeated to students every semester, but figures released by the Department of Education last week seem to suggest another cue might be a good idea.
At public colleges and universities, 7.2 percent of students defaulted on their federal student loans within the first two years of payment, up from 6 percent last year. At 15 percent, for-profit college students fared much worse. With 8.8 percent of all college students defaulting on loans, the U.S. is seeing the highest rate since 1998.
And it’s going to get worse before it gets better.
The statistics cover borrowers whose first payments were due between Sept. 2008 and Sept. 2009. Unemployment didn’t peak until October of 2009, and they have been higher than the previous year on average since then. More bad news: a study from the Institute of College Access & Success found evidence that only one in five of those who default on student loans do so during the first two years—at least at for-profit schools.
While worried students might be tempted to support MoveOn.org’s solution to the problem—forgive all $942 billion in student loan debt in an effort to stimulate the economy—there are much more effective ways to prevent a default.
Using loan money wisely is chief among them. Tuition at USF St. Petersburg is reasonably low, which gives students the option to borrow more money than they need for schooling. Many students choose to take this money for extracurricular purposes. But three-day benders at the Tavern during homecoming week are not an effective way to use loan money. Worse, such use could prevent a student from obtaining further financial assistance. Students should only use loans for education-related purposes.
Eric Cantor took flak from student organizations in July when he suggested students should pay interest on their college loans while still in school. But Sallie Mae already offers a similar program that can save up to $6,725 in interest on a $10,000 loan over 10 years. Students simply pay $25 per month toward their loans while still in school. Cantor’s plan never passed the discussion table, but students can still choose to pay their loans while in school to cut future payments.
The best way to prevent defaulting on a student loan is to practice student loan abstinence and not get one in the first place. There are many ways for creative students to avoid borrowing money. Living with parents and using a bicycle for transportation might not make a student the coolest guy or girl in school, but it can save some cash. Other students choose to save money during high school with a part-time job, or start their own businesses in college.
Students can’t control the unemployment rate, but they can control their habits. That’s something worth remembering.
