The average student graduated with over $24,000 in student loan debt last year. Though tuition is increasing in many parts of the country, high student loan balances can often be attributed to the student ‘living on the loans.’ This means the student takes out student loans beyond the tuition expenses and uses the extra for their living expenses.
My wife and I learned this the hard way as we added together our school bills. Taking out extra loans to live on pushed our college debt $15,000 – $20,000 higher than it needed to be.
While it’s true that students may need some funds to pay for room and board, they can really harm their financial future if they fall into the student loan trap – paying for EVERYTHING with student loans. Before you make the same errors we did years ago, learn from our mistakes and follow these pieces of advice.
Plan ahead for the bill.
Before you sign the dotted line for that loan, do your homework and find out all the costs of attending school. Your next step should be to seek out all scholarships, work-study positions, or part time jobs available for college students on campus.
Yes, working while in school is difficult and making school payments of $200-$500 each month may be tough, but you’ll be glad you did something to keep the bill as small as possible.
Stick with Federal Loans.
Your goal should be to avoid private loans at all costs. With interest rates ranging from 7% to 12%, private student loans are bad news. If your financial aid, scholarships, and federal loans don’t meet the bill, you might have to use private loans – but do so with extreme caution and try to pay them off as quickly as possible.
Don’t take more than you need.
This applies for federal loans and especially for private loans. Think twice before taking out ‘a little extra’ to buy a car, clothes, or to help with eating out on the weekends. These purchases should be done with money you EARN – not borrow. Student loans aren’t supposed to be a line of credit to purchase anything you want, so borrow with care.
The Harsh Reality
In just six short months after graduation, the grace period will end and your loans will be due. That $5,000 – $6,000 you borrowed each year grew to $20,000 – $25,000 in total and the payments are $250+ each month for the next 10 years!
The unfortunate reality is that students graduate with too much debt and it becomes a ball and chain for the next decade of their life. For some, avoiding the student loan trap may mean choosing a school that is more affordable or taking prerequisites at a community college first.
Finally, the biggest mistake I hear is when students think their income will be high enough to pay down their debt quickly after graduation. Without consideration for everyday bills and expenses, their inflated income expectations are usually put back into reality and they are racing to get out of the student loan trap as fast as they can.
Do you have any advice about getting out of the student loan trap? Or even better, avoiding the trap altogether?
Photo by CarbonNYC