One of the most controversial topics in finance today is student loans. The ease of getting them, their limitations in bankruptcy, and the stress they cause families is beyond reason. I know people who graduated with 4 years degrees that have over $100k in student debt. These equate to $1000/month payments for 20 years. It’s hard to believe that a young college graduate would be saddled with $1000/month payments until they’re in their 40s. This is just unacceptable, but who is to blame?
Parents, blame the parents – when you’re 18, you probably know a thing or two about money. You know how much it costs to fuel a car, how much it costs to buy a movie ticket and how much a paycheck usually is at that age. What you don’t know is how valuable $100k is to you at that age. It’s critical that parents educate their children on the difficulty of paying off loans that size. It’s also important that parents understand the value of local colleges, community colleges and commuting to school.
Cost of Living on a Loan
The worst part about student loans is they aren’t entirely for tuition. You can take student loans out to cover the cost of living, apartment rent, utilities, books and more. All of these expenses have zero return-on-investment for the student, and saddle them with those costs far into adulthood. Add interest on top of the borrowed money and you’re paying 2x the rent back over the course of the loan.
Start local, then go big – the best way to finance a college education is to start local at the community college. Most tuition rates at community colleges are under $2000/semester, and some are far less than that. But that means you can get the first 2 years of college for under $10,000. That’s a remarkable bargain compared to going away to school, which will run at minimum $20,000/year. You’re saving 75% or more by staying local. Of course, that does not include the cost of a car and commuting expenses, but even if you add those, you’re looking at saving at least 50% and you have a car.
We all wish we were smart enough, talented enough or lucky enough to get free money for college. But free money isn’t just for those people. Actually, there is scholarship money available to almost every college student, you just need to apply for it. Do you research ahead of time, and make sure you apply for all the possible scholarships available. Sometimes, a college will offer a year of tuition or a steep discount. Make sure you count all the expenses before you make a decision. Even free tuition at a school 1000 miles away will cost $10k in living expenses annually. Don’t saddle yourself with unnecessary debt just because a college is giving away tuition.
What Is Too Much Debt?
This is an interesting question, because in my opinion, any debt is too much debt. If you plan carefully, you should be able to get through college with no debt. This would require that you work during your college years, and use that money for tuition, books and other expenses. It helps to have additional funding from parents, grandparents or other family and friends to keep costs low, but if you can avoid loans, by all means do so. If not, try to limit your loans to federal student loans. Sure, you cannot get out of paying them for almost any reason, but they’re usually the lowest rates, and they are the most flexible in terms of paying back. If you do limit your loans to federal only, you’ll be looking at about $125-150/month for every $10,000 you borrow, which is a more manageable figure.