College grads average $32,158 in debt in Michigan. Here’s what some didn’t know
- October 18, 2019
Excerpt from Detroit Free Press
About that thing called ‘interest’
College grads receive a six-month grace period before they have to start paying down student loans. Getting a diploma in May means many will begin to repay those loans in November.
But if you have unsubsidized federal student loans, the interest keeps building during that six-month period, too.
Add up all the steps it takes to march across the stage to pick up a college diploma —and then throw on $29,200 in debt.
That’s the average amount of college loans — a record in the United States — that the Class of 2018 racked up, according to the latest report by the Institute for College Access & Success. That’s up 2% from the 2017 average of $28,650.
The average debt in Michigan is even higher at $32,158, where 59% of graduates carry some college debt along with that diploma.
Average student debt at graduation in 2018 ranged from $19,750 in Utah all the way up to $38,650 in Connecticut, according to the report. Six-figure college debt remains fairly uncommon but it’s trending upward.
Around 178,000 students graduated nationwide owing more than $100,000 in the 2015-2016 academic year, up from 51,000 in 2003-2004, said Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com. That includes both undergraduate and graduate debt.
For those graduating with bachelor’s degrees, the numbers are even smaller — dropping to 9,726 owing more than $100,000 in the 2015-16 academic year and 2,304 in 2003-2004.
Talk to anyone who has graduated with college debt and you’ll soon understand that paying down student loans isn’t as easy as paying off a car loan.
While there are income-driven repayment plans available to take into account high debt loads for those with lower-paying jobs, the interest quickly adds up when student loan borrowers turn to such repayment plans to reduce their monthly payments.
Pay down as much debt as you can
Student loan debt builds as interest is being charged on student loan debt. The sooner the debt is paid off, of course, the less you’d end up paying overall.
So it does help when extra money — maybe a bonus or a tax refund — is used to pay off some student loan debt in order to reduce the outstanding student loan balance.
When it comes to paying down student loans, make extra payments towards student loans with the highest interest rates first. That will save you the most money, Kantrowitz suggests. Some borrowers say they’ve developed a game plan for paying down student loans.
“Any amount you can give toward it helps because it reduces the amount of debt you owe — reducing the amount of interest you have to pay,” said Shakiya Perez, 31, who graduated from Eastern Michigan University and has $26,000 in student loan debt.
Perez, who lives in Westland, is aiming to pay off her student loans within the next five years and said it’s important to have a plan of attack. She’s taking advantage of a partnership that her company has with GreenPath Financial Wellness, to get some free advice.
Perez, who is a quality and training supervisor at Dearborn-based clothing company Carhartt, benefits from a student loan assistance plan there, too, where Carhartt will pay $50 a month up to $10,000 total to help eligible part-time and full-time workers cover their student loan debt. Employees have to be with the company at least 30 days, if non-union, or 90 days, if in a job represented by a union. And in May, Carhartt expanded its existing program to also include Parent PLUS loans.
Look closely at your entire financial picture
Kantrowitz also suggests that some grads who obtained jobs quickly shouldn’t take full advantage of that six month grace period to start paying off loans after graduation.
If you have $25,000 in college loan debt at graduation, you could save $795 if you have a loan rate of 5% and immediately make amortized payments after graduation, instead of delaying six months, to pay off that debt in 10 years, Kantrowitz said.
He suggests that you try to choose a repayment plan with the highest monthly payment that you can afford to pay the debt down quickly, such as a standard 10-year repayment plan.
“Too often borrowers choose a longer repayment plan, such as extended repayment or income-driven repayment, which leads to more interest,” Kantrowitz said. “Reducing your monthly payment does not save you money in the long term.”
Sign up for automatic payments each month out your bank account, too, as you’d be less likely to miss a payment and many lenders give a small discount, such as a 0.25% reduction off your interest rate, he said.
Create a strategy where you are able to pay your other bills on time and make necessary payments, including the minimum payments on any credit card debt, too.
“We don’t look at it in a vacuum,” said Chris Dlugozima, learning experience designer with GreenPath Financial Wellness, a national nonprofit headquartered in Farmington Hills.
College grads average $32,158 in debt in Michigan. Here’s what some didn’t know
Take time to understand possible options — such as consolidating loans, researching the exact requirements for student loan forgiveness programs and any benefits at your job that might help you pay down some student loan debt. Go to the central database — the National Student Loan Data System — to get information about your specific loans. See www.StudentLoans.gov.
“Get a handle on who do I owe,” Dlugozima said. Student loan borrowers typically don’t have one loan.
On average, college borrowers have four student loans with an average balance of $35,594 as of the second quarter of 2019, according to data from Experian.
Borrowers, for example, can consolidate the federal loans for free at StudentLoans.gov. The same U.S. Department of Education site also has a student loan repayment estimator that can give you a view of various repayment plans.
The repayment estimator can tell you the different monthly payments under different repayment plans and budgets, and what kind of interest you’d be paying overtime.
Dlugozima said borrowers with college debt need to realize that being 30 days late or more on student loan payments will impact a credit score and can drive it down.
If someone has a private student loan, he said, he or she should talk to the loan servicer and see what repayment options exist. In general, private loans have few repayment options and can lead to more repayment problems. Make a call to review possible options.
GreenPath also offers student loan counseling services for $50 or $200, depending on the level of services.
Read the entire article here on the Detroit Free Press website.
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