Ever since the coronavirus outbreak, concerns surrounding rising unemployment rates, companies going on lay-off sprees and talks of recession have started gaining momentum. In these uncertain times, it’s hard not to worry about your finances, particularly if you’re a student or a recent graduate with student loans. Many prospective students are rightfully thinking twice about taking out high interest loans to pay for university tuition. This crisis and the looming economic recession has really exposed the weaknesses of current education financing loans, mainly that:
They do not protect students against job loss:
Probably the biggest flaw of student loans is that they do not offer any protection to students against job loss. This highly inflexible nature of student loans in times of crises ultimately puts huge financial burden on students particularly if they have recently been furloughed or laid off from their place of employment. Most student loan providers will still expect to be paid regardless of your financial situation. On top of that, if you skip payments, you can find yourself in even more debt since interest accrues over time. And while deferment and forbearance programs do exist so as to allow students to pause their payments on their student loans and still remain in good standing during economic uncertainty, these programs do not always apply to all types of student loans.
The interest rates will increase
Most student loan providers have variable interest rates, which can increase significantly during times of crises. The COVID-19 pandemic has left a lot of students questioning whether now is a good time to make their student loan payments. The fact of the matter is, that majority of the student loan interest rates are likely to increase. This can become quite burdensome for graduates in the long run. And even though the government is taking measures to pause all interest rate increments, these benefits are unlikely to extend to all kinds of student loans, like private loans, for example.
They create a stressful debt burden
With the financial burden of traditional student loans, graduates may find it incredibly difficult to achieve some stability in these uncertain times. Student loans can end up exerting tremendous financial pressure and create a stressful debt burden for graduates, making it difficult for them to get back on their feet. What graduates need right now is a virtuous break to recover from this situation without going bankrupt and student loans are increasingly making it difficult for them to do so.
As the COVID-19 crisis continues to expose the flaws of student loans, we desperately need a change in the system. Many industry experts are touting Income Share Agreements as the best alternative to traditional student loans. Income Share Agreements are contracts where students pay back a fixed percentage of their income for a fixed duration only when they are employed. They are very flexible, and provide an insurance against job loss. To explore this more affordable alternative to traditional student loans, sign up at www.edbridg.com