A-State brings relief to horrors of college debt
Published: Thursday, October 24, 2013
Updated: Thursday, October 24, 2013 17:10
The dark recesses of student debt are a bit like a haunted house, complete with debt collectors lurking in the shadows, never-ending corridors of confusion, interest trapdoors and mirror rooms presenting every side of loan repayment in stunning disproportion.
The more visitors to the house of debt, the more chaos ensues. Every year, hundreds of thousands of college students nationwide run up millions of dollars in student loans and credit card debt.
Philip Tew of the department of economics and finance conducts grant-funded research in small business finance and general financial literacy.
Through the past year, Tew has found that financial literacy in college students has a direct correlation to overall monetary security of those students and the loan default rates in universities.
“Twenty-one to 23 percent of students can’t tell me the amount of money they owe,” Tew said. “Twenty-two percent of freshmen don’t know their credit card debt, and 8 percent of seniors don’t know.”
According to Christina Kostick, a default prevention specialist in the financial aid and scholarships office, being unaware of one’s debt situation can be a major obstacle to becoming financially stable.
“Be aware of where your money is going,” Kostick said. “That’s a big thing, to be very vigilant about monitoring your accounts. Students do that with everything else, but sometimes they forget to do that with their loans.”
In his research, Tew found that most freshmen are paying for their college schooling through scholarships and grants. However, as scholarships run out or are forfeited, more graduating students turn to loans to complete their academic career.
Cameron Hunter, a senior psychology major of Wynne, estimates that she has just under $10,000 in student loans. “I have an ex(boyfriend) who has over $30,000,” Hunter said. “His family was like, ‘it’s good debt,’ but I think no debt is good debt.”
Debt-free living may not be possible for all students. For those with student loans, responsible repayment choices are essential to maintaining their financial independence and future borrowing options.
Kostisk said, “We get students in here all the time asking, ‘Which loans do I have to pay back?’ Well, they are all loans so they have to pay back all of them.”
If a student goes more than a year in loan delinquency, meaning without making a significant payment towards the balance, the loan is defaulted.
“Defaulting on a student loan can ruin your credit severely,” Kostick said. “It can affect whether you get a good interest rate on a house, your loan for a car, or even earning a license (to practice) certain professions.”
Not only can student loans haunt graduates well into grandparent age, credit card debt can sneak up from behind and ensnare unsuspecting travelers in its unforgiving stranglehold.
“Almost three quarters of undergraduates and more than nine out of 10 graduate students use credit cards,” said Forbes contributor Larry Light.
It is not owning a card that causes the problems, it is the irresponsible repayment practices in which college students typically engage. Light said less than 10 percent of college credit card users pay off their entire bill each month.
Reluctance to keep up-to-date on credit card payments can lead to severely inflated interest rates on credit balances, and even hurt cardholders’ credit scores if they allow the balance to remain unpaid for too long.
Credit cards are not inherently bad or good, Tew said.
“They are an item, and how they do (financially) depends on how well the person who is managing it does.”
Wandering the halls of the haunted house of student debt without a guide can be fraught with peril. One may easily fall into the trap of inflated interest rates, be fooled by a false door towards positive credit scores or be dumped into the dungeon of delinquency and default. Fortunately, A-State has many resources to offer to students hopelessly lost in the house of horrors.
Representatives in the financial aid department are available to counsel students on fortuitous loan agreement and repayment options.
Kostick said, “The (student loan) creditors are here to help. It’s not like credit card companies where the creditors will say, ‘I’m sorry that’s sad for you, but we can’t do anything about it.’ The lenders will give you options.”
Loan repayment options can range from standard to income-sensitive, which allows graduated students to repay their loans on a variable scale based on income earned in employment after graduation.
In addition, the A-State Economics and Finance Department has recently begun sponsoring financial literacy sessions for student groups of any kind.
According to Kostick, the best action for students to take is to educate themselves. The website for the National Student Loan Data System, www.nslds.ed.gov, is a “one stop shop for all of students’ federal aid,” according to Kostick. The web system allows students to view information for every loan they have taken, regardless of the sponsoring institution. “It also has their Pell Grant information,” Kostick said.
For additional information, the Nelnet website at www.nelnet.com offers free access and printing of the Live Life Smart Guide, a brief comprehensive guide to student loans and fiscal responsibility.
If students monitor every turn they take, they can reach the end of the twisted house of loan troubles and see the comforting light of a debt-free life emerging beyond the slatted wooden door. Who knows, there may even be free candy.