"It is disconcerting that graduates cross the stage with a diploma in one hand and student loan debt in the other," said Gail Cunningham, spokesperson for the NFCC. "Young professionals face a tepid job market, which could make repayment even more difficult. However, NFCC member agency certified financial counselors are ready to help borrowers find programs that are appropriate for their budget and unique situation."
Even if a person secures a good-paying job, an average student loan debt of $30,000 can start graduates off in a financial hole, especially as interest continues to accumulate on their loan, she said. While the federal government offers a number of income-based repayment plans for borrowers of all income levels, sorting through them to find the right plan can be challenging. NFCC's certified financial professionals can help graduates identify optimal repayment plans that can minimize the amount of interest paid over the life of the loan, while maintaining an affordable monthly payment.
Since student loans are reported to credit bureaus, they can either wreck a person's credit history or help build a positive one. Student loan activity is treated as an installment loan, so making on-time or late payments are treated like other installment debts such as car payments.
"Since payment history is a highly weighted element of the credit scoring model, ignoring student loan payments can have a long-term negative impact on a person's credit report and subsequent score, thus potentially hindering future borrowing power," Cunningham said.
Even though Hardman is now making a decent salary, he can't purchase a house because his credit is terrible.
"Signs of my credit ever getting better are slim," he said. "It's still not enough to keep the lenders at bay. This is worse than the housing crisis because people can't escape this debt and I think we've just scratched the surface of how bad this problem is."
Hardman, who was the first person in his family to attend a four-year university, regrets obtaining the private loans, because the lenders would not work with him on repayment options.
"The federal folks will work with you, but the private lenders won't, because the bankruptcy laws are in their favor," he said. "They know that you can't get out from under the debt because the law changed in 2005 and private borrowers can no longer discharge them. This in turn means that all they have to do is file a case and get an automatic judgment."
If he could turn back the clock, Hardman said he would have taken out federal student loans only and tried to convince his parents to take out PLUS loans that he could pay back after graduating.
"The first part of the problem is that I was a kid and didn't know what I was getting myself into," he said. "My parents co-signed without doing any research. In fact, my mother and I don't currently speak over this issue. She blames me, and I blame her partially."
The complexity of student loans has driven a wedge between Hardman and his parents, permanently affecting their relationship.
"I get that my parents didn't know what they were signing up for, but I was just an 18 year-old kid," Hardman said. "My parents have blamed me for ruining their credit and basically called me a deadbeat. I hope other borrowers who have experienced similar strains on relationships will read this and know they are not alone and maybe sharing this with their parent will help them."
Making even one late payment on your student loans will have a very negative consequence on your credit history, said Jeff Golding, CEO of WilliamPaid, a Chicago-based company which allows people to build credit through paying their rent online for free.
Since student loans do not contain a prepayment penalty, Golding recommends that consumers examine their budget so they can pay more.
"Even a small additional payment to the principal every month can have a major impact to getting out of debt sooner," he said. "Cut out two lattes, and you have an extra $10 a month to apply towards your principal balance, which can save thousands of dollars. Try to increase that to $20 to $50 by looking at your impulse buys and what you spend money on frivolously. You don't have to change your lifestyle that much to find an additional $20 a month."
--Written by Ellen Chang for MainStreet