Student Loans + Credit Card Debt = Stress

Posted by Terri Eyden on Jul 10 2012 2713 printer friendly

Rising tuition costs and excessive borrowing have left many recent graduates struggling to afford basic living necessities, according to findings from Accounting Principals' latest Workonomix survey. Although Congress took decisive action to stop student loan interest rates from rising, many recent grads are still grappling with high debt after graduation. According to Accounting Principals' survey, a majority (68 percent) of recent graduates are leaving school with an average of nearly $40,000 of debt. Most of this debt has been accrued through student loans ($27,029); however, recent graduates also leaned heavily on other debt ‒ like credit cards ‒ to get them through college, amassing an average of $12,742 of nonstudent loan debt upon graduating.

Paying Student Loan Debt

There are various loan repayment options, including:

Pay in full. If you have the money, you can choose to pay back all you owe at once, without owing any more interest. Usually, this option is not viable, or else you probably did not need to take out the loans in the first place.
Standard Payment. You make monthly payments to pay back your loans with interest within ten years. This gives you the best interest rate, but requires the highest monthly payments.
Graduated Payment. This is a viable option if you get out of college expecting to make a modest but steadily increasing wage. The payment requirements will start off low, then increase every couple of years for the next 10 to 30 years.
Income-Based Payment. You may choose to make your monthly payment bill proportional to the amount you currently make and get up to fifteen years to pay it off.
Long-Term Payment. You pay back your loans plus interest in thirty years with monthly payment.

Following are ways to defer payment, if needed:

Consolidation. Basically, if you owe multiple creditors, you can combine these loans into one big loan and take longer to pay it off, with more interest to pay, of course. Many companies are offering loan consolidations; do your research and shop around for the best rate.
Deferment. If your loan is unsubsidized, you can negotiate with your creditors to give you a time period during which you do not have to pay, but will allow interest to continue to accrue. You can defer your loans automatically if you go back to graduate school.
Forbearance. Similar to deferment, in that you get a grace period, forbearance allows you to negotiate with your creditor a three-month period during which you do not pay, provided you document a circumstance of hardship.

Interestingly, debt statistics also seem to cut across gender lines; survey results indicated that male graduates accrued more debt on average than their female counterparts. The survey found that male graduates owed 28 percent more in student loans than female graduates ($30,508 vs. $23,892, respectively). Male grads also tapped more heavily into their credit cards during college, accruing twice as much credit card debt than female graduates ($17,858 vs. $8,574).

Regardless of who borrowed the most in college, recent graduates are finding it difficult to stay financially afloat after graduating. The survey found that 42 percent of recent graduates thought they would have more disposable income once they graduated. However, the reality of being a recent grad has proven to be more challenging ‒ 83 percent of those surveyed cannot afford basic living necessities, including groceries, rent, cell phone bills, car, and student loan repayments.

"The most surprising finding in our Workonomix survey was the massive amount of debt these graduates had to take on to pursue a higher education," said Jodi Chavez, senior vice president of Accounting Principals. "Entering the job market as a recent graduate is always stressful, but leaving school with this amount of debt puts added pressure on the newly employed."

According to the survey, recent graduates would have been more proactive about their finances during college had they known more about the cost of living. Approximately one-third of recent grads would have pursued more scholarships or financial aid options (35 percent), pursued a major that would have led to a higher paying job (31 percent), or gotten a job while in college and started saving earlier (31 percent).

But despite their regrets, graduates are being proactive about their finances and would like to be able to turn to their employers for help. More than two-thirds (68 percent) of those surveyed said their employer does not provide financial education courses, but nearly half (48 percent) would participate in them if offered.

"Employers are in a unique position to help entry-level workers navigate the challenges of being a recent graduate. They can offer inexpensive lunch-and-learn sessions that provide an overview of the basics of personal finance," said Chavez. "As a recent grad looking for employment, contact a recruiter who is willing to put in the time to coach you on your interviewing skills, help you improve your resume, and connect you with the right opportunities that will allow you to focus on the future and not the financial burden of your past."

Access the full results of the Workonomix survey.

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Source: Accounting Principals

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