Survey Shows Student Loan Debt Influences Career and Other Financial Choices
FREDERICKSBURG, Va.--(BUSINESS WIRE via COLLEGIATE PRESSWIRE)--Aug 27, 2003--A new survey of recent college graduates indicates that high student loan debt is having a significant impact on the decisions many make in post-graduate life -- decisions that may have lasting affects on their career paths and financial health. The survey, released today by Collegiate Funding Services, LLC (CFS), also shows a jump in the number of college graduates who are unprepared to make their monthly student loan payments when the first bills begin arriving this fall.
The ''2003 CFS Planning and Paying for Higher Education'' survey conducted by Harris Interactive paints a clear picture of the implications of student loan debt among college graduates. As tuitions rise, so does student loan debt -- more than half of college graduates (52%) report owing between $10,000 and $40,000 in student loans. In addition, many are carrying credit card debt into their post-graduate years -- a time when earning power is traditionally at its lowest. 83% of college graduates surveyed report making monthly credit card payments.
More than half (55%) of college graduates said that student loan debt is making it difficult for them to fulfill their financial objectives. As a result, nearly a fifth (17%) have had to make tough choices in order to meet their student loan obligations -- including decisions not to pursue careers they may have studied for in college. One in three college graduates (30%) said they took a job that paid more over a job they may have preferred in order to make more money. This is an increase over last year`s CFS survey that found one in five of those surveyed (20%) took a second-choice job to make ends meet.
''These young people are increasingly entering the job market heavily encumbered with student loan and credit card debt, while trying to find housing and establish themselves financially,'' says J. Barry Morrow, CEO of CFS. ''It`s unfortunate that many feel they have no choice but to take a better paying job just to meet basic expenses.'' Mr. Morrow goes on to say that the long-term implications of such choices may extend beyond individual career paths. ''If increasing numbers of graduates who may have aspired to teaching or public service careers, for example, forgo these options because they simply can`t afford the lower entry-level pay scales, employee shortages in these important fields may become more critical.''
Of course, having to take a second-choice job, while not ideal, may be a far better prospect than that faced by many who`ve been unable to secure adequate employment at all. Not surprisingly, given current economic conditions and the weak job market, more than one in three college graduates (34%) said they were unprepared to make their first monthly student loan payment that arrived at the end of the ''grace period''-- the six-month ''payment-free'' period on federal student loans following graduation. This is a significant increase over a survey conducted last year, in which only one in five respondents (19%) reported that they were unprepared to make payments.
Unfortunately, awareness of the Federal Consolidation Loan Program, which was enacted by Congress to make student loan repayment more manageable, remains low. Of recent graduates, more than half (53%) were unaware of the program. This is almost identical to the findings of last year`s CFS survey, which found 54% of respondents unaware of the Federal Consolidation Loan Program.
Under the program, student loan borrowers can take advantage of today`s historically low interest rates by consolidating their existing variable rate federal student loans into a single fixed interest rate loan with extended payment terms that can slash monthly payments by up to 54% -- or up to 58% if borrowers consolidate before their grace period ends. Grace borrowers can lock-in a rate of up to 0.6% lower than if they wait to consolidate once their loan enters repayment, thereby benefiting from lower monthly payments and significant interest savings over the life of the loan.
The majority of the class of 2003 will be entering repayment on their federal student loans in November, so in order to secure their consolidation loan at the lowest possible interest rate, they must act by late September or early October, at the latest.
''Consolidation is a smart financial move given the increasing amount of student loan debt and the challenging employment outlook faced by many graduates,'' said Mr. Morrow. ''It is an easy and practical debt management tool because it gives graduates more freedom to manage their overall debt burden.'' For example, a recent graduate with $25,000 in eligible student loans can reduce their monthly payment by $109 a month through consolidation if they act before their grace period ends, says Mr. Morrow.(1) With credit card interest rates averaging 14.94% according to credit card tracker CardWeb.com, that money could be used towards paying off credit card debt, resulting in significant long-term interest savings.
Lack of effective debt management is significant in the long term because it undermines graduates` efforts to save for their future goals, including retirement, making it difficult for them to begin building a nest egg early in their adult life. Three out of four college graduates surveyed (75%) said monthly student loan payments prevents or delays them from saving money, and 44% said their payment prevents or delays them from contributing to 401(k) or other retirement savings programs.
According to Mr. Morrow, ''Proactively managing debt is crucial in reducing lasting negative effects on the careers and finances of recent college graduates.''
Methodology
The ''2003 CFS Planning and Paying for Higher Education'' survey was conducted online for CFS by Harris Interactive, a worldwide market research and consulting firm best known for The Harris Poll(R). The survey was conducted between April 22, 2003 and May 12, 2003 among 1,062 U.S. college seniors and college graduates. The results have a statistical precision of plus or minus 3 percentage points.
About CFS
Collegiate Funding Services, LLC (CFS), is a leading nationwide provider of products and services that address a full-range of education finance and debt management needs. CFS has helped over a quarter million education loan borrowers create and customize student loan repayment plans that suit their budget and financial goals. Headquartered in Fredericksburg, Va., and with satellite operations in Pinellas Park, Fla., as well as a wholly-owned servicing subsidiary in Ridgeland, Miss., CFS now employs approximately 1,080 individuals. All CFS Lenders are Equal Opportunity Lenders.
For additional information, consumers may visit www.cfsloans.com or call 1-888-423-7562.
(1) Monthly estimated payment amount after consolidation is calculated under the Federal Consolidation Loan Program level repayment plan using an example in-grace interest rate of 2.875% with an extended repayment term. Extended repayment term in the example assumes that the consolidation loan amount is equal to total education debt with terms of $25,000, 20 years. The actual rate and payment may differ. Examples assume that all loans were first disbursed between July 1,1998, and June 30, 2006. Loans disbursed before this period have slightly higher interest rates.
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