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How to Be Smart About Student Loans

on 11/9/2016

Girl in front of ChalkboardThere is one thing you can start doing this year to take away a lot of stress in your 20s, and that is to minimize your student loan burden.

With the college years often extending beyond the typical four-year period and sometimes even including graduate school, a lot of today’s students are graduating with loan debt the equivalent of a mortgage … but they have no house to show for it.

A college degree is an asset, and borrowing to get that asset is sometimes necessary.

With the high cost of tuition, borrowing is a must for most college students. But that does not mean you need to put an unbearable burden on yourself for the next two decades of your life.

Keep in mind, if you want a medical or law degree, you will almost certainly have to go tens of thousands – or even hundreds of thousands – of dollars in debt. Those degrees usually lead to high-paying jobs, so that is a manageable amount of debt if, and only if, you are absolutely positive that this is what you want to do with your life.

There is no reason to panic, but you need to be aware of what a high student loan debt burden means.

How does student loan debt impact your life? How much student loan debt is too much?

For one, it means that you lose some flexibility. You will have monthly payments that you need to make.  Therefore you must be earning enough to make these payments as well as your typical life expenses.

If you are just getting an undergraduate degree, it is tough to justify the accumulation of more than $20,000 in student loan debt over four years. Even that is a high amount, and it will result in a significant monthly payment of almost $300. To put that in perspective, your car loan might be lower than your student loan payment and an average rent payment is maybe just a few hundred dollars more.

Be sure to consider all options for minimizing student loan debt and the upcoming monthly payments. Do the math, calculating future monthly loan payments using a student loan calculator and consider the reality of your future career.  Do your potential future earnings make sense for the financial investment?

How to Reduce Student Loan Debt

Part of minimizing your student loan burden is good planning. For example, choose the highest “value” school that also gives you a great experience. Consider starting out at an inexpensive community college and then transferring to a more prestigious university. Get as much in scholarships, grants and aid from your family as possible. While you are in school, try to avoid wasting credits – do you really need to take a bowling class?  Don’t be afraid to take time off if you are unsure about your future – college might not be the answer for you. Here are some other practical steps to conisder:

Consider Trade School

Going to trade school is often less expensive than attending a traditional college or university and the skills you learn can help improve your earning potential later in life. A recent New York Times article reports, “Plumbers and the related trades, who often work in commercial and industrial settings, earned a median pay of about $49,000 a year nationally.  This is well above the $35,000 average for all occupations, according to 2012 data from the Bureau of Labor Statistics. The top 10 percent earn more than $84,000 a year. The average in big markets like Chicago and New York is about $70,000.”

Don't Fall for Prestige

And most important of all, do not fall for the social pressure encouraging you to overpay for college for “prestige” points.  Going to the best school you can should be a priority, assuming that it makes financial sense and you're happy there.  When you are actually paying off your loans, you will be happy you avoided that trap.


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