Debt fret
We all know student debt is the proverbial elephant in the room during any conversation about college. Yet we tend to distract ourselves from it, or dismiss it altogether, when considering which colleges are best for a student. A recent Princeton Review survey showed that the majority of students and parents said getting into their dream school was more important than affordability.
This avoidance-approach to stress associated with student loan debt has enabled it to become a potentially devastating problem in recent years, with 44 million borrowers having an average debt between $30,000 and $40,000 each and struggling to repay their loans. According to recent statistics, the total student loan debt in the United States is around $1.7 trillion, nearly twice the record credit card debt in the U.S. In addition to massive increases in spending, with little increase in enrollment, more and more college students are taking much longer than 4 years to graduate college; currently only about 40% of college students graduate on time. Even after 8 years, about 25% to 30% haven't graduated; most of them never will and yet they still have the debt to deal with.
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Making matters worse, college enrollment is expected to decline in the near future, likely forcing colleges to charge even more. Nonetheless, campuses are still building new facilities, offering more and more amenities and attractions, hiring more and more administrators to manage new offices, programs, etc. despite knowing it increases debt and harms students.
Paying off student loans can take years or even decades, delaying important life milestones such as buying a house, starting a family, or saving for retirement.
Student debt can limit career opportunities and force graduates to take jobs solely for the salary and not the quality or interest in the role.
High levels of student debt can increase stress and negatively affect mental health.
Defaulting on student loans can lead to serious financial consequences, such as wage garnishment and lowering credit scores.
Student debt can perpetuate existing inequalities and socioeconomic disparities, as students from lower-income families are more likely to have to take on larger loans and struggle to pay them off.
For students who are currently considering taking out a loan to pay for their education, there are several important things that they should know before proceeding. Here are some of the most vital factors to consider regarding debt:
A Bachelor's Degree is not the only option for a lucrative career. Many trades involve apprenticeship training and currently pay comparably to or more than jobs that require a Bachelor's Degree, such as Construction Managers, Elevator/Escalator Repairers, Residential electricians, Commercial truck drivers and many more.
Families can request the college financial aid office review/recalculate their financial aid offer, especially if a little more means you'll definitely choose that school. Keep in mind, that an increase one year, does not guarantee it will be the same next year.
Take the time to look for private (or other) scholarships and grants. Apply to any that the student is eligible for and not too time intensive. While there are plenty of them available, they often have very narrow eligibility requirements or require intensive applications, meaning the odds are not in a student's favor to begin with, but sometimes the effort does pay off.
Consider a cheaper school. Remember, how you college is much more important than where you college, and it's quite possible to get an elite level education from a cheaper school when the student engages fully in their academics and professional development.
Consider cobble-stone strategies to cut costs by piecing together courses/credits towards a degree or equivalency exam (e.g. community colleges, CLEP, "Freshman Year for Free", etc.). A student might take free online courses and then take the CLEP exams, or they may get an Associate's Degree at a Community College then transfer, or they may earn a degree using Coursera. Some possible ideas:
Take free online courses from Modern States, StraighterLine, The Open University, or others and take corresponding CLEP courses via The College Board.
Take courses at a community college or get a certificate or an Associate's Degree and transfer. Keep in mind that not all credits will transfer, so it's good to research ahead of time and ensure the student knows which colleges they may transfer to and which credits will and will not transfer to each. Also be aware that community college costs are rising, too, and it may not be saving as much as you may assume.
Coursera offers free online courses and full-blown certificates and degrees from highly respected colleges.
Consider working to earn money. Keep in mind that working often makes time-management more difficult in college, but many students do it. Be sure to not allow working to (a) make you take less than 15 credits a semester, (b) cut back time on academics instead of time devoted to social activities, and (c) keep you from engaging professional development opportunities, such as internships, conferences, networking events, etc. Also keep in mind, the money you earn can impact your financial aid packages, so be sure to work with your financial aid counselor to discuss ahead of time.
Taking out a loan should be your last resort. If you do take out a loan, be sure to do the following:
Know the different types of loans, their interest rates and how it's calculated, and their repayment terms beforehand, so the student can avoid paying interest on interest and just adding to their debt. This will allow families to plan theirr finances accordingly and avoid getting deeper into debt later on. Interest rates usually vary depending on the type of loan and the borrower's credit score, so it is important to research and compare different options. Repayment terms are also crucial, as this will determine how long it will take you to pay off the loan.
For example, federal student loans are much better than private loans due to lower interest rates and longer repayment plans, but you may end up paying a little more interest over time in a few cases, especially if you refinance.
As part of the plan, students should live frugally and not use loan money to live beyond their means. For example, don't use loan money to help pay for a vacation or spring break trip. Use loan money for tuition, fees, housing, and school supplies; but avoid using it to cover car payments, food, gas, clothes, or any other goods that are essentially consumed.
Be sure to plan ahead for how the student will pay back their loan; better yet, plan how they'll pay it off early! Consider budgeting 150%-200% of the payment each month, but be sure the student knows how their loan servicer expects overpayments to be communicated so they apply to the principle and not the next month's payment. The former reduces the amount of interest you pay and can cut the length of the loan more directly. Check salary data related to the student's major or career/job area and plan a detailed budget.
Before you refinance, understand that the student will be paying more interest and extending the length of the loan. It's a good idea to "do the math" and calculate how much they'll pay at the current rate until the end of the loan, and how much they'll pay in total after the refinance. It may not be much savings at all, and sometimes the student is paying more in interest over time.
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