Buying a home is almost always a solid investment in your future. But more and more, student loans are factoring into people’s decisions to either move forward with trying to qualify for homeownership or to wait. If you are concerned about your student loan burden and want to know how to best handle it in relation to achieving the dream of buying a home, this chapter is for you.
First off, know you definitely are not alone. Nearly 45 million Americans currently carry student loan debt, and many of them are struggling to keep up. The default rate is at 10.8%. That means for every 10 Americans with student loan debt, around two are at least 90 days late. And six million of those 45 million borrowers are in deferment or forbearance; many of their balances are actually getting higher as they accrue interest without making payments.
Millennials are delaying or avoiding homeownership because of it. The Wall Street Journal estimated that between 2005 and 2014, student loans prevented 400,000 young Americans from buying homes, and the numbers are rising year by year.
But this isn’t just a problem among young people. Lots of families take out Parent Plus loans to help their kids go to college. These types of loans accounted for 23% of the total debt lent to undergrads in the 2017-2018 school year. Interest rates on Parent Plus loans are nearly double that of other kinds of student loans, so parents are paying back far more than they actually borrowed. Two particularly disturbing facts about Parent Plus loans: there are no annual borrowing limits, so technically parents can for the entire tuition with a loan; there are no income requirements to qualify, so it’s relatively easy for families to get in over their heads once they pass a simple credit check.
It is way too easy for folks to get upside down with student loans. At 18 years old, you have thousands of dollars available to you with the click of a button, even with no credit or income. The debt can follow you around for a long time and limit your ability to pursue other dreams. If you ignore your student loans, you have very little recourse; not even bankruptcy can save you.
This is something to take extremely seriously. Do not let student loan debt impact the trajectory of your life. A college education is a wonderful thing to have, but misusing student loans could change everything for you, your spouse, and your children. Parents, do not take out a bunch of money in loans just because you can. Educate yourself and your children on credit and if they are college-bound and need to apply for loans, monitor the process.
If you have student loan debt, my advice is to do everything you can to pay it off sooner rather than later. They make it very easy to put off repaying your loans for a long time, but it can cost you a lot of money to put your student loan payments out of sight and out of mind. Interest will be tacked on to your balance every month and before you know it, the amount that you owe will have doubled.