u.s. economy - student loan debt

Student Loans, Part I: 10 Things to Consider Before Getting One

Americans now owe a record $1.3 trillion in student loans – yes, trillion! How did this happen?

It started with the Higher Education Act of 1965 which allowed students to take out big loans for college. As a result of students’ ability to pay, colleges increased their tuition. This became a vicious cycle where schools continually raised prices and the government continually raised the amount of money for student loans.

And now students are stuck with the tab. Many signed off on loans they didn’t fully comprehend or realize the impact of until years later.

 

Average Yearly Costs for a College Education

student loans Chart: CollegeBoard.org

Depending on your school type, four years in college can pile up to $78,000 – $175,000. But, most students need 5 to 6 years to complete college which means $117,000 – $263,000. That’s when students are tempted to resort to student loans thinking they have plenty of time to pay them back.  However, you want to think carefully before taking out a student loan.

 

10 Things to Know Before You Consider A Student Loan

1.Be sure your major is worth the investment. How much will people in this major earn after graduation? What is the outlook in the future for this career?

For example, if you plan a career in the helping professions such as teaching, psychology, social work, you may want to avoid a pricey private college (unless you have loads of scholarships).

The total cost for a private college may not be worth the return on investment (the type of career you’ll be able to have upon graduation). Employment places like nonprofit organizations and public school systems have limited budgets, so they can’t pay you a higher salary just because you attended an expensive private college.

2.The numbers of students who graduate in four years are shockingly low. Only 19% of students graduate from a public college in 4 years. Why? Students change colleges and lose credits when they transfer; some can’t get the required sequenced courses they need because the courses are full; and some enter college needing remedial courses.

Time is money. More semesters to graduate = more student debt.

3.What happens if you have a loan and then quit college? Or you don’t like your major field after you graduate? Or you can’t find a job in your career field? The student loans you take out are still your responsibility and must be repaid.

4.Student loan debt can hold you back from your other financial goals and dreams such as marriage, starting a family, or purchasing a home. In a recent survey, 73% of young college graduates have delayed saving for retirement or making other investments because of their student loans.

5.Student loans are generally for 10 years but many can last as long as 25 years or even into retirement. According to a 2014 report from the Government Accountability Office, over 700,000 people relying on Social Security are still paying their student loans!

6.A student loan affects your credit score, especially if you are late making payments or have too much student loan debt. Many employers now run credit checks on potential employees and a bad credit rating can impact your ability to get the job.

Student loan debts also impact any mortgages, car loans, or credit cards you want to acquire.

7.Be careful signing any loan at a “for-profit” college. Many are not accredited and their credits may not transfer to a state or private college. In addition, these colleges tend to be more expensive and you generally have to get private loans to attend them.

8.Rarely does student loan debt go away in a bankruptcy. Less than 1% of people who file for bankruptcy manage to get their student loans discharged.

There are some debt forgiveness programs but these programs are often laden with special requirements to qualify.

9.It’s harder than you realize to keep up with student loan payments after graduation. Life happens…The unexpected pops up… As of June 2015, about 11.5% of outstanding student debt was at least 90 days late or in default.

Currently, the federal government can seize up to 15% of the Social Security check of retirees in default to pay back student loans.

10.If you must take out a loan, get it for the smallest amount possible. Don’t think of a loan as “free money”. Many college students can tell tales of friends who used excess student loan funds to purchase cars, party, or go on spring break trips.

Understand what type of loan you are getting. A government loan? A private loan? A loan that parents are responsible for? Private loans require credit checks and if you have no credit built up or have bad credit, you will need a co-signer, which can be dangerous too.

Ask about repayment options, the interest rate, an interest-free grace period, and how much your total loan will cost when it’s paid. Does the interest start accruing immediately after you sign the papers? Or after you graduate?

 

With this knowledge in mind, how can you attend college without taking on student loans or at least keeping them to a minimum?  The more you know, the less you will owe.

Continue on to Part II of this blog: Student Loan Debt, Part II: 10 Ways To Avoid It

 

No matter which major you select or how much you earn in your field, what really matters in the end is how much you keep… And keep some of it in gold.

Let me show you how.

 

Believe in the best. Prepare for the worst.

Let’s talk.

good money

 

 

 

757-310-9175

jameslawson.ws@gmail.com

 

9 Comments

  • Dr. Lisa Thompson

    Reply Reply January 14, 2016

    Picking up my jaw off the floor – talk about STICKER SHOCK!

    Dr. Lisa

    • jameslawson.ws@gmail.com

      Reply Reply January 14, 2016

      Right! And you are a Doctor so you know! The saddest fact to me was discovering that over 700,000 on Social Security still owe student loans. Man, that’s no way to live in retirement.

  • ANNALIZE

    Reply Reply January 15, 2016

    James, these figures are shocking! Really have to plan very carefully for the future and a job!

  • ANNALIZE

    Reply Reply January 15, 2016

    James, these figures are shocking! Really have to plan carefully for a future and a job.

    • jameslawson.ws@gmail.com

      Reply Reply January 26, 2016

      So true, Annalize! Yes, I found some of these numbers surprising myself!

  • jeff beeman

    Reply Reply January 15, 2016

    Probably should have read this two years ago when my son started college. Part of ( if not all of) my current business goals is to get ahead of student loans and pay off as quickly as possible. Ouch!

    • jameslawson.ws@gmail.com

      Reply Reply January 15, 2016

      Your son is blessed to have you helping with his loans. We hope our Part 2 of this series may give him some additional ideas to help save money.

      We have friends whose children are saddled with large student loans, some well over $100k. That’s like an additional home mortgage!

      Thanks for your comments, Jeff!

  • Blaine Sincennes

    Reply Reply January 15, 2016

    Great read James, we have similar situations here in Canada, I wish I found a post like this before I opted for my degree.

    • jameslawson.ws@gmail.com

      Reply Reply January 15, 2016

      I noticed that, Blaine. When researching this blog I did see that Canadian student debt averages about $27k per student. That’s pretty close to ours. wow.

      Thanks for your comments, Blaine.

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