MINNEAPOLIS (WCCO) — A new study says student loan borrowers are struggling to keep up with their payments.
An analysis of government data by the Consumer Federation of America found the number of Americans who have defaulted on their student loans went up 17 percent last year. There were 4.2 million borrowers in default last year.
“It’s a lot of money for these kids,” Traditional Wealth Management managing director Chad Schumacher said.
A student loan is considered in default after 270 days with no payment Schumacher says borrowers may see defaulting on a student loan as a way to keep up with other expenses.
“Not only do they have their school loans, they have their credit card loans they need to pay as well,” Schumacher said. “It’s out of sight, out of mind.”
But consequences are big: fees, interest, and long-term effects.
“You’re going to have a bad credit score, and it will hurt you in getting a house loan, it keeps on going on and on,” Schumacher said.
Schumacher says it’s important to think about student loans before going to college, choosing a school and area of study that will yield an appropriate salary to afford the debt.
“I had lunch with a college person today who was going to Hofstra [University] and went to St. Thomas because it was cheaper,” Schumacher said. “There’s a lot of things that go into these decisions, cost is obviously a large one.”
If you need more motivation to stay in school, experts say students who drop out of college are more likely to default.
The average borrower owes more than $30,000 in federal student loans. The numbers don’t include those borrowing through private student loans, credit cards, or home equity loans to finance college.