Debt as a Mortgage
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:
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."
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:
© EDFUND 2006.