Before investing in a college education, many students ask themselves questions such as “How much should I spend on school?”, “How much should I borrow in loans?”, “How much student loan debt is too much?”, and “How can I attend school and keep my credit clean?” There is no one-size-fits-all answer to these types of questions; however, thinking about what’s personally comfortable for YOU can make your future debt management efforts easier to handle.
Over the years, student loan debt has spiraled into a trillion-dollar pandemic. Today, it’s the second largest form of consumer debt, just behind home mortgages and just slightly above credit cards and car loans. As a college student or someone who is looking to apply for college soon, knowing how to manage your student loans is apparently as important as keeping your grades up these days.
Here are some tips on how to keep your student loan debt from spiraling out of control:
Gather All Pertinent Data –
People vaguely talk about student loans and so a lot of us think that there’s just one type. If you dive into it further, however, you’ll see that there are different types of loans that you can borrow. In most cases, college students apply for either a federal loan or a private loan to help finance their college tuition. Under a federal loan, it branches out to different types of loans, such as the PLUS loan and the Perkins loan. To determine the type of loan, you can either ask for assistance from your college’s financial aid department or request for the data from the National Student Loan Data System.
Avoid Credit Cards –
It’s fairly tempting for incoming students to apply for credit cards for their college expenses. They’re practically magnets for credit card companies. And credit card companies usually make it easier for students to apply and get approved for a line of credit since they know that students have a more promising financial future. If you do have to apply for a credit card or are already using one, it’s crucial to curb all unnecessary expenses. The interest accrued on credit cards makes everything you buy more expensive than the retail price. You might want to check out Secured cards first because it’s a safer way to build up your credit.
Payoff Interest Quick –
Student loans are generally a smart investment since it rewards you with a college degree when you are finished. Kept unchecked, however, the interest attached on these loans can make it more difficult to pay off the total amount. For the most part, college loans from the federal government typically have better interest rates, not to mention that some of them can be deferred from your taxes. Loans that are not need-based should be paid right away since interest rates start accumulating right away when you finish schooling.
Consolidate Your Debt –
Consolidation is a very common debt management tool for credit cards and mortgages but it may work equally well with school loans and other forms of debt. The main upside of debt consolidation for a college student is that it reduces the monthly payments into a more reasonable amount. It can also stretch the initial grace period you were given from your initial terms. Before choosing to consolidate your debt, make sure to compare the interest and other terms being offered on the new contract. It’s not uncommon to get a higher interest rate on your new consolidated loan and you don’t want that. Advantage CCS is happy to help young adults get on a good financial track and help with debt management by offering free credit counseling programs, including online credit counseling.
Look At Alternative Options –
For college students with a federal student loan, alternative repayment options may be available. Contact your lender BEFORE you start to fall behind on loan payments. This includes graduated repayment, which allows for initially smaller payments, extended repayment, which extends your loan over a protracted time frame, and even a “Pay as you Earn” option, which deducts up to 10 percent of your monthly earnings to pay for the loan. These alternative debt management options can indeed reduce your monthly payments, but keep in mind that they also have the tendency of prolonging your repayment plan or raising your interest rate. A loan that would supposedly be over in 10 years might go for an additional 5+ years if you use these alternative options.
Other Things To Consider –
There are some types of schooling that will allow you to pay back your loans fairly easily once you begin your career. Medical school, for example, can certainly be worth the thousands of dollars of debt you are likely to incur because you will be able to earn enough money to pay the debt down. For example, the average family practice physician can earn $137,119, according to the United States Bureau of Labor Statistics. However, seeking a Ph.D. in an obscure or low-paying humanities discipline – or, choosing to go to an expensive, top-tier school — might not wind up working out in your financial favor.
Professorial teaching appointments, for example, are competitive, and there are far fewer of them than there are interested PhD-holders in the United States. Many students are awarded assistantships, which can help to offset schooling costs. However, if you already have undergrad loans to pay off, it might not be worth risking your financial health and credit score to go into a low-paying and competitive field, where tenure track is the exception, and part-time or temporary appointments are the norm.
Another major cause of student loan debt, surprisingly, is law school. Facing rapidly rising tuition costs, many law schools continue to increase their prices. According to The Law Journal, increases in law school tuition are out-pacing entry-level salary increases at many firms. And, many members of a law school’s graduating class, believe it or not, will NOT get the big-bucks jobs. In order to make partner at a high-paying, large public firm, a student must be a top performer and must work for 60-80 hours per week for several years. Many students wind up at smaller firms or work as public interest lawyers, so their compensation might not be adequate enough to offset large loan payments. Still other students, after earning their JDs, do not practice law at all.
The biggest downfall of professional school students, however, is living beyond their means while still in school. Taking out large loans to fund a fun lifestyle – which can be tempting whether you’re studying in New York City or Pittsburgh, Pennsylvania — will catch up with you, the student, later on. Paying a modest amount of rent each month and limiting frivolous expenses like designer clothes, trendy concerts, and top-shelf alcoholic drinks can help students enter the “real world” after professional school in as little debt as possible.
Final Thoughts –
While not all of these options will work to your advantage, it’s better to know that they exist rather than not know at all what your options might be. As a college student, empowering yourself with this knowledge can give you the financial independence and freedom to start earning money after college without having student loans weigh you down. No one wants to graduate with a ton of student loan debt.