The Ugly Truth About Student Loan Debt-Part 1-Student Loans and What Leads to This Debt

There will be a 3-part series of "The Ugly Truth About Student Loan Debt." This post will focus on Part 1-Student Loans and What Leads to This Debt. .

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Many of us dream of pursuing a higher education in order to build our careers. But unfortunately, the vast majority of us do not have enough of our own money to fund education or do not qualify for a grant. What do we do? We resort to taking out student loans. As a result, many of us college graduates have a degree and a lot of financial mess, which can often include credit cards and no job lined up.

Yet, here are some staggering facts on student loan debt that I have read:

• Overall student loan debt in the United States: $1.2 trillion
• Student debt amount accrued each second: $3,000
• 2014 average student loan debt from graduates: $33,000

Unfortunately, my student loan debt is around $45,000 (I am paying them back)!

Funding higher education is one of the costliest investments that anyone can make in today's society, especially in the United States. This number has increased by over seven-hundred percent within a thirty-five year period. In addition, food and electricity costs have gone up tremendously; who can forget those ever-rising gas prices? None of us. Even that has increased by at least four-hundred percent.

Myths About Student Loan Debt

There are many myths about student loans debts and on different ways to repay them. Of course, many of us often turn to our family and friends for advice--in many cases, that can turn out to be a disaster (I know about !)this all too well. Therefore, there is a lot of bad information that is given.

Here are some of the most talked about student loan debt myths:

• It's debt well worth it. True, if you get and have a job that pays very well along with a degree. In reality, your student loan debt should not be more that your salary in the first year.
• Federal and private loans work the exact same way: No they do not! There are so many differences between federal and private loans--like day and night. Think about the interest rates, forgiveness programs and loan modifications, just to name a few.
• Declaring bankruptcy: The all-time popular student loan debt myth! Debunked! Unfortunately, bankruptcy cannot resolve student loan debt. In particular, federal and private loans cannot be forgiven,

Figuring Out Student Loan Interest Rates

When taking out student loans, one of the things that you must consider is the interest rates. Just think of student loan interest rates as the cost of borrowing money and how much you can afford to go to college and getting an education. 

Interest rates are calculated by the percentage of the unpaid principal that exists on a loan. The cost has its variations, depending on the interest rate and the loan type. For example, students that are taking out Subsidized loans do not have to pay interest six months following graduation. In addition, they do not have to pay interest during deferment. In contrast, students that are taking out Unsubsidized loans begin paying interest as soon as the money is given to them.

Here is a student loan interest rate scenario:

• $15,000 Direct Unsubsidized Loan with a 5.5% interest rate, the amount of interest that is accrued is $2.26 a day. (0.055/365) x $15,000=$2.26. If you put your loans on deferment or forbearance for six months, your loan will accrue interest totaling around $407.
• If you do not pay the interest, then it will be capitalized, or be added on to your principal balance. You will be charged interest in addition to the principal balance, which will be $15,407. The amount of the interest that will be accrued will increase to $2.32 a day. (0.055/365) x $15,407=$2.32

The vast majority of repayment plans, the capitalized interest will increase your payments on a monthly basis and the overall amount you pay over the existence of your loan.

If you want to invest in a higher education, especially when taking out student loans, then think about how much it will cost you and what you are expected to repay. In other words, stay ahead of the ballgame!

I will talk to you later. Until then, Happy Saving!

Next post: Ways on Managing Your Student Loans