Student Debt as a Mortgage
Submitted by Valerie Gonzalez and Pete Leonard, EDFUND

Student loan payments are increasingly being viewed in the same light as mortgages. In recent news articles, financial experts maintain that a major commitment to paying off college debt can affect an individual's ability to buy a home or save for retirement or a child's education.

A recent article in the Pittsburgh Post-Gazette, Graduates' Dilemma: Living in Shadow of Debt, reported that when students and graduates consolidate their loans, borrowers also take advantage of the offer to extend the payment period of their loans. Instead of just a 10-year payoff term, they opt for one of 20, 25 or even 30 years. Borrowers are attracted by the lower monthly payments but for a much longer term—making their loan more like a mortgage.

According to the article, on a $20,000 federal loan at 4.75 percent interest:

• Over 10 years the payment would be $210 a month
• Over 20 years the payment would be $129 a month

However, the borrower would have to pay an additional $5,800 for the extra 10 years in repayment.

Student loan debt is becoming a concern over a longer period in a person's life. Increasing debt being paid off over a longer period might have serious consequences for graduates.

"We don't really know what effect this is going to have, financially and psychologically," said Robert Shireman, executive director of the Project on Student Debt in the Pittsburgh Post-Gazette article. "Paying off those student loans can be a signal to start saving for retirement, or start putting away money. We're pushing those off in the future and we're going to see different patterns."
A recent report further demonstrates that recent graduates are leaving school with unmanageable levels of debt, negatively impacting their post-college lives.

College Debt Crunch – The Long-Term Impact of Education Debt on College Graduates by Alliance Bernstein Investments, polled 1,508 college graduates aged 21 to 35, making these observations about those graduating from college with debt:

• 34 percent say they have sold possessions to make ends meet.
• 42 percent say they live “paycheck-to-paycheck”.
• 27 percent say they delayed getting a medical or dental procedure.
• 31 percent with outstanding college loans say Madonna will become a grandmother before their debt is paid off.
• One-third of indebted graduates give parents a “D” or “F” for financial preparations.
• Nine-in-10 say graduating without debt is a “big advantage in life”.

© EDFUND 2006. www.edfund.org
EDFUND, a nonprofit public benefit corporation, is the nation’s second largest provider of student loan guarantee services under the Federal Family Education Loan Program. EDFUND offers students a wide range of financial aid and debt management information while supporting schools with advanced loan processing solutions and default prevention techniques. For more information about EDFUND products and services, contact Valerie Gonzalez, Senior Client Relations Manager – toll free 866.353.4950, vgonzale@edfund.org, or Pete Leonard, Client Relations Manager – toll free 866.614.6105, pleonard@edfund.org.