Student Loan Debt: The Dark Side of Liquidity

Photo Courtesy of Nick Youngson (Creative Commons)

If you are a student, you can probably relate to the stereotype that individuals in university struggle financially. Many students rely on the allowance given to them by their parents, as they find the pressure of school to be too much to add a part-time job into the mix. However, a large portion of undergraduates look to the federal government to offer them loans, and it is not uncommon that these loans are spent on more than just tuition fees. Since student loans contribute to tuition, food, and living expenses, students have a large balance at the beginning of the semester. What is not considered is how this lump sum of cash affects students’ spending habits.

Approximately 68-percent of American students and 11-percent of Canadian students receive financial aid from their respective governments to help pay for school-related expenses. After tuition and living costs are covered, there is often a large portion of money left over that is expected to be used to pay back what was borrowed at the end of the four years. The lender gives you the authority to spend money in any way you prefer, but students can be enticed to spend it on items they would otherwise not be able to afford. Some of the aforementioned indulgences include restaurant dinners, alcohol, Uber rides, and vacations. All these factors increase unproductive spending, which, in turn, contributes to the seemingly exponential growth of student loan debt.

University students across Canada were interviewed in order to get a better sense of approximately how much of their student aid was going towards ‘non-necessity goods.’ A marine biology student at the University of Calgary notes that she purchased six science textbooks, a MacBook Pro and an E-Reader, spending approximately $3740 a semester. The biology student noted, “I mean, people got this money given to them. They can do what they want with it. Everybody goes into debt and accepts that responsibility when they accept loans.”

The lender gives you the authority to spend money in any way you prefer, but students can be enticed to spend it on items they would otherwise not be able to afford.

Studies show that 77-percent of students regret wasting their loans on unimportant goods, especially because their money eventually has to be repaid with added interest. Students are finding it increasingly difficult to pay off their debt because the job market is weak and finding a job is difficult for many that have recently graduated. Since students are allowed to manage their loans on their own, the neglect of repayment is becoming more prominent, especially in the U.S., where tuition is much more expensive.

The law in the U.S. states that if your loan payment is more than 90 days late, it is officially “delinquent,” which means that your failure to pay will be reported to major credit bureaus and your credit rating will take a considerable hit. With a bad credit reputation, getting bank approval to make large investments and purchases in the future will be nearly impossible. Credit agencies will not take pity on those struggling to make payments.

However, many students would not have the opportunity to go to university if it were not for government aid. In fact, the majority of individuals heading to post-secondary school do not have the means to pay for their schooling in addition to the added expenses of living without any help at all. Federal loans are meant for students to be able to have the chance to get a higher education, and that is why they offer a lower interest rate than private loans and repayments that can be postponed for up to three years if you are experiencing economic hardship post-grad.

As a student, it is easy to recognize how difficult it is to hold off purchasing certain items, especially with the illusion of a liquid bank account. However, repayment installments will begin six months after you graduate, even if you negotiated a lower monthly rate. If you are finding that you are not spending all of this money on school, it would be wise to put this into a savings account right relieving your temptations. Do your best to refrain from buying a PS4, a brand new car, or any non-school related items you would otherwise not be able to afford without student loans. As a student in today’s world, it is important to delineate between earnings and borrowings.

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