“I’ll have the education, minus the debt, please!”
Student loans are getting quite a bad rap these days. There is a lot of doubt about the worthiness of acquiring post-secondary education in the form of a baccalaureate or master’s degree. As a holder of a MBA, I will be the first to laud the merits of getting advanced education. Statistics show that those who do continue their education earn more exponentially throughout life. However, like everything else in life, it’s time to refine our thought process regarding how we pay for education.
It doesn’t matter, because, when I graduate, I’ll get that dream job with a salary to match, right?…says every 18 year old.
Any type of education should be approached with a purpose. Is it gainful employment (I emphasize the gainful, but we’ll talk about that later)? Is it status? Many people think that you should go to school to be fulfilled, and satisfaction is definitely important. However, in a capitalistic society within an increasingly global world, can you afford to spend money/acquire debt just for the gratification of knowledge? Or, is the application of that knowledge the ultimate goal?
To that end, here are some high-level methods to avoid a potential debt nightmare on the front end, while expanding your possibilities and enabling a more secure, consistently-financially-stable life for yourself on the backend:
- Save and
pay for as much as you can. This
might seem basic, but every bit counts. Even if you can only pay for books or
meal plans, do it! I had a high school classmate whose father made him sell his
car (a very used Honda) before he went to college, to contribute to the fees.
It wasn’t much, but I’m sure he was appreciative of that forethought from a
parent who understood that graduating with a mound of debt can put a damper on
that American dream.
- Do NOT accept the more than you need. Many times, students are offered an amount over what will cover tuition and fees. They accept these extra funds as living expenses or pocket money. While some of this may be warranted in certain circumstances, it often ends up becoming a trap of convenience.
Some students wait for refund checks at the beginning of every term and proceed to the mall for shopping or nights out on the town. Some even use it to send back home to help family. But, nothing is free, and that money will have to be repaid. Keeping a laser-focus on financial discipline and the future can help avoid that post-graduate stress and a possible lifetime of paying back a student loan the size of a mortgage.
- Work a part-time job. Whatever happened to paying your way? Yes, college can be stressful, but so can watching $50,000 in loan debt balloon into $75,000 over the course of your adult life (again, compounded interest). Contributing just $2000 per year could equal ~$12,000 or more in reduced debt overall (remember the compounded interest!). Paying back less is always a win.
- Consider starting closer to home. Junior colleges or tech schools offer core classes where you can transfer the credit to a larger school later, at a fraction of the cost. What matters most-where you begin, or where you end?
- Finally, and this might be the most important, CHOOSE YOUR MAJOR WISELY! What ROI (return on investment) are you anticipating? In this century, simply having a bachelors degree does not even guarantee you will make it to middle class. The market determines your salary-worthiness, not your ideals or passions. A large number of jobs/roles that exist today will be obsolete within 5-10 years.
Many people aren’t working in the area that they majored in; your 18 year-old self is not the same as your 30 year-old self. The world as we know it changes drastically every year. So, make an informed choice by researching industries, salaries, and market projections. Plan to be aware of shifting demand and to practice perpetual learning, so that you can remain equipped to shift your own marketability when needed.
Remember that many colleges are for-profit, and those that are not, still need to bring in revenue in order to survive. They supply what areas of education are in demand, not necessarily those that will result in lucrative employment. It is up to you to evaluate debt accumulation against potential earnings. In this case, debt is an investment in yourself, so return on investment is critical.
This scenario does not focus on those who receive grants or scholarships; even then, choosing your major wisely is important. The true figures don’t get real until after you switch that tassel to the left side of your cap and get your first loan statement. Student loans are not evil; the education they cover should be worth it.
Over time, your small balances should disappear one by one, freeing up more dollars to throw at your larger debts and loans. This “snowball effect” allows you to pay down smaller balances first logging a few wins for the psychological effect while letting you save the largest loans for last. Ultimately, the goal is snowballing all of your extra dollars toward your debts until they’re demolished and you re finally debt-free. Attacking your debts with the debt snowball method will speed up the process, but earning more money can amplify your efforts even further. Nearly everyone has a talent or skill they can monetize, whether it’s babysitting, mowing yards, cleaning houses, or becoming a virtual assistant.
3 Young college graduates with student loans are more likely than those without loans to report struggling financially. Student loan holders give a more downbeat assessment of their personal financial situation compared with their peers who don’t have outstanding student debt. College graduates ages 25 to 39 with loans are more likely than graduates without loans to say they are either finding it difficult to get by financially or are just getting by (22% vs. 11%). About three-in-ten young college graduates with student loans (32%) say they are living comfortably, compared with 51% of college graduates of a similar age without outstanding loans. 4 Young college graduates with student loans are more likely to live in a higher-income family than those without a bachelor’s degree. For many young adults, student loans are a way to make an otherwise unattainable education a reality. Although these students have to borrow money to attend, the investment might make sense if it leads to higher earnings later in life.