Student Debt Loans
Student Debt Loans |
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The first question to ask is not “Where can I borrow the money and with what kind of loan?” Rather the first question to ask is “What is student loan debt and what are its ramifications?” Unfortunately the ramifications for millions of American students who have defaulted on their student loan debt is a life dominated by that student loan debt and aggressive collection agents. And by dominated I mean having very large payments due each month and having to scrape by to just try and keep up with minimum payments. So first of all you need to know that student loans and student debt can get you into big trouble. Just assuming that you will earn enough to pay off your student loans could be the biggest mistake you will ever make in your life. The first rule of thumb is: do not borrow more than what one year of salary in your field is expected to be. As an example of what not to do, I recently read about a young man who borrowed $75,000 in private student loans to pay for college. He is now a teacher earning $24,000 per year, and his monthly loan payments are $1,400, which almost matches his take-home pay. I am sure he wishes he had read the words on this page before he started his march down the valley of debt.
But with the cost of higher education at levels that would have been unthinkable just a decade or two ago, almost everyone is forced into some kind of student loan or debt program. College costs on average about $20,000 a year at state sponsored schools and about $50,000 a year at private colleges. This is more than most people can afford, and the costs just keep going up.
Student loans and student debt can be broken down into two large categories: federal and private student loans. Federal student loans are always better for the borrower. They have interest rate caps that are set by law and there are many more protections available for borrowers, such as the rights to deferment or forbearance, and the right to set up a repayment schedule based on actual income earned. Private student loans do not have any of these guarantees, and in general on this site we advise to just stay away from private student loans. So many people these days get into serious trouble with private student loans that they are best avoided. This may mean some sacrifices, like going to a local junior college and living at home for or year or two rather than heading off to a prestigious private college. But even people with diplomas from prestigious colleges can get into deep financial trouble. Merit scholarships are another strategy to cut down on student loan debt. They take a lot of effort, but the paybacks can be large. This site will carry lots of articles to help you in this endeavor.
I noticed when my children were attending college that they had a lot of friends there that really were not motivated to be in college. Rather, they were there because high school was over and they didn’t have anything better to do. Most of them dropped out after a year or two. I imagine that many were financing their schooling with debt from student loans. This means that they had a debt burden when they dropped out, and they didn’t earn a diploma or have any credentials for a good paying job. At least their debt levels probably were not too high, as they were only in school for a year or two. The point here is that young people should only go to college if they are serious about it. The days of thinking that “all education is good, and any money spent on it is worth the cost” are, or should be, over. The cost of higher education is just too high these days. There are tens of thousands of former students who are overwhelmed by their student loan debt load and who wish they had never attended college in the first place. So your job is to understand when student loan debt is good and if it is right for you. This site will help you navigate this field of reeds and come out the other side knowing where you are heading. Good luck.
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