Due to the student debt problem in the United States, more and more student loan assistance programs are showing up. These assistance programs have all the best intentions behind them. For the most part, if things work out in your particular situation and you’re dealing with the right set of circumstances, these types of assistance programs will turn out well for you.
Unfortunately, for many American students struggling with a mountain of student loan debt, it’s too easy to drop the ball as far as loan assistance is concerned.
It’s too easy to engage in the same old financial habits that got them into trouble in the first place.
Instead of these programs providing a way out from the tremendous financial hassle that you’re grappling with, they can actually make things worse. This may seem a little bit crazy and counterintuitive, but the sad reality is if handled improperly assistance programs might actually amount to throwing gasoline into the burning embers of your financial situation.
In many cases, you might have been better off without going through these assistance programs.
There is one big problem with student loans. They are loans and by definition they have to be repaid. You have to remember that as a student, you have many financing options available to you. You may not qualify for these options, but there are still options nonetheless. You can qualify for free money. Now the term “free money” might seem awesome, but you’re actually quite familiar with these programs. They’re called scholarships.
There are also contests and free money programs that aim students. There are all sorts of corporate sponsorships that you could apply for. Similarly, there are work study programs where you can work for the school and they would discount your tuition or write it off completely.
There is a wide range of financing options on the table, but unfortunately too many students don’t want to be bothered. They don’t want to hassle with all these options and they go straight to the loan process. This would okay if you are clear about what you’re getting into. Sadly, most students have this idea in the back of their heads that somehow or someway this is free money. Well, this sounds crazy because a lot of them do understand that it’s a loan, but they treat it like it’s free money.
The emotional impact on them is that it’s free money because they get the cash immediately and the point in time where they actually have to roll up their sleeves and start putting in work to pay off that loan is long into the distant future. Not surprisingly, as far as their emotional states are concerned, it’s no different than if they won the lottery. This is the biggest problem with student loans. They have to be repaid.
Wait… it gets even worse
If you think that the biggest problem with student loans is the fact that they have to be repaid, wait it gets even worse. The bad news is that unlike most other loans that you can contract for, student loans often have a government subsidy. This is the reason why a lot of government-backed student loans have such low interest rates. It’s not that these banks are lending to students because of their health. It’s not because they discovered this long lost altruism. They’re offering these loans at low rates because the government is picking up the tab.
If you decide to declare bankruptcy, you cannot get rid of your student loans because of that government subsidy. This is the worst part of the typical student loan scenario. Most Americans that declare bankruptcy think that they are getting a financial reboot or a second chance. The problem is, it’s hard to get much of a second chance when you have hundreds of thousands of dollars in federal student loans hanging over your hear. That’s never going to go away. You have to either consolidate that, reschedule that, or otherwise deal with it in such a way that you can eventually pay it off.
Student loan assistance programs are actually not much different from typical credit assistance programs, like debt consolidation. You have to remember that lenders would rather get paid a little bit less every month than not getting paid at all. In other words, they’d rather have you take your time paying them off instead of legally absolved of your loans. This is not rocket science. Something is always better than nothing.
In fact, the typical student loan assistance system is set up in such a way that the lender actually benefits. Why? Even though they reduced your monthly payments, they increased the timeline in which you will make payments. So in terms of actual money being sourced from you in terms of repayments, they’re actually coming out ahead. This is why it’s no surprise that a lot of lenders would rather have you consolidate your loan.
Sadly, a lot of student loan assistance programs define student loan assistance primarily as debt consolidation. This is misleading. Why? Keep reading below.
As far as helping students get out from under their huge student loan debt, consolidation is actually just one part of their arsenal. It is just one option available to them. There are actually other options on the table. Sadly, too many borrowers have this mistaken idea that the only thing that they can do to make their student loan repayments more bearable is to consolidate their debts.
There are actually a lot other things you can do. You can apply for loan forgiveness programs and you can also apply for government programs that help students who work in certain areas. You should take this opportunity to look at the short-term and long-term impacts of the different assistance methods available to you. This is not as black and white as you might think.
If you are too eager to consolidate your loans, you might end up in a situation where you’re stuck with student loan obligations for as long as 20 or even 30 years. It’s as if you have taken out a mortgage to buy a home. While the argument could be made that you actually made a better investment by investing in your education instead of buying a home, the financial pain of having to live with such a long-term financial obligation still has to be dealt with.
It’s one thing to intellectually justify such a long and protracted repayment program. It’s another to actually be emotionally at peace with it. This is why I strongly recommend that you look at the short and long-term impacts of the different loan assistance options available to you.