As a financial advisor, I’m often asked: “Are student loans a wise investment in my future…or a bad idea?”
Let me offer some facts, an example, an update, and some advice.
Some facts:
- Average annual (in-state) tuition (no room and board) at public four-year colleges now stands at a whopping $10,700. At private colleges, the figure is about $40,000.
- Current total student loan debt now stands at $1.75 trillion (this includes both federal and private loans)
- Depending on what source you believe, the average federal borrower owes anywhere from $29,000-$37,000.
What does all that borrowing cost? Current interest rates on federal loans range from 4.99%-7.54%. Private loan rates range from just under 4% to almost 15%.
An example:
Let’s say you borrowed $35,000 at 6.54% from Sallie Mae for grad school and agreed to pay it back over 10 years. Every month for a decade you’d be writing a check for $398. You’d ultimately pay back around $48,000!
Only time will tell if your degree was worth the expense.
But you can see why the website www.collegescholarships.org has referred to student loans as the “gateway drug to debt slavery.”
“Okay, but isn’t the government forgiving student loans?”
An update (as of August 2023):
The Biden administration’s proposal to wipe out $430 billion in student loan debt was struck down by the Supreme Court in June.
The President immediately vowed to find another way to offer government debt relief to those with student loans.
Meanwhile, other politicians keep touting the idea of “free college.”
Should anyone make educational plans on the basis of such statements?
Given the current political climate, I’d say, “Better plan on paying for whatever higher education you ‘purchase.’”
Some advice:
Let me close with 7 ways you can minimize (or eliminate) your need for any kind of student loan:
- Utilize other funding options. Look into grants, scholarships, and college savings plans first.
- Consider no-loan schools. Research colleges with policies that cover students’ full financial needs.
- Evaluate future earning potential. Ask “Do salaries in my chosen field justify me borrowing a hefty sum of money for schooling now?”
- Don’t overlook community college. Take basic courses at a good, but less-expensive community college, then transfer to a four-year college.
- Hustle. Take on a part-time job, create a small business, or get tuition assistance programs from an employer.
- Cut living expenses. Be frugal. Avoid unnecessary expenses to keep overall costs low.
- Understand repayment terms. Familiarize yourself with the repayment plans and calculate monthly payments. (And if you already have student loans, understand your options and create a plan for repayment. Two resources are the Federal Student Aid website and the National Consumer Law Center.)
Higher education might be a blessing, but student loans can be a curse.
Just ask the 63% of college students who regret going into debt for their degrees.
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