Student Loans… A Necessary Evil?
The subject of student loans is huge. These days it’s almost required to have a college degree and with that comes a big financial hardship. Not everyone can afford college and it’s only getting worse. Because of the current economic climate parents are forced to cut expenses and simply can’t afford a college education for their kids. Most people do not save for college even though there are tax savings in place to take on your tax return.
Fresh out of high school, students are forced to borrow and borrow and borrow until the funds are exhausted. Most students are coming out of college already in serious debt that will take years to repay. Everyone will argue that student loans are the best debt you can have and they’re right. It’s a great investment but college is only getting more and more expensive and student loans are getting harder to get. If you’re lucky you can qualify for federal student loans but if you’re not you have to get private loans. Private loans are more risky because they have higher interest rates with no cap. Federal loans at least have an interest rate cap. But what’s a student to do? The cost of living is rising and the cost of school is rising along with it. Luckily, the president proposed the new student loan forgiveness program in his recent State of the Union address. But rest assured that there are other options that you have in paying for college.
So, what should you do as a parent?
First off, if you can’t afford it don’t do it. Some parents are dipping into their retirement to pay for their son/daughter’s education and that isn’t a good idea. Have them fill out a Free Application for Federal Student Aid (FAFSA) to see if they can get federal loans or grants. Grants and scholarships are still in arms reach and are possible to get.
Second, look at your options. Look at the differences between federal and student loans, look at interest rates, and figure out how long it will take to pay the loans off. Another possibility is a parent loan; they are more pricey than a regular federal student loan but are better than private loans. In some cases it might help your son or daughter to cosign their loan; having a cosigner with good credit can lower their interest rate and give them a better chance of receiving the loan.
Third, help your kids only as much as you can. If you can’t afford to pay for their school, maybe buy them a week’s supply of groceries or a tank of gas.
And lastly, encourage them to find a good school that doesn’t cost an arm and a leg but respect their decision to go wherever they want.
As a student:
Attend a community college for the first two years of your education. It’s very likely that you will not have to take out any loans during these two years. The cost of education at a community college is much cheaper than at a four year institution. It’s not uncommon that professors at a four year institution teach at the local community college as well. It’s also possible that most, if not all of the classes are transferrable to a four year university.
Give yourself time. The credit crisis has hit lenders hard and finding money when everyone else is looking for it is extremely difficult. Apply for the loans with plenty of time so if you get turned down for one you’ll be able to look for others. Keep in mind that emergency tuition loans are outrageously expensive!
Pay attention to interest! Be careful of how much you’re borrowing. Don’t borrow more than you absolutely need to, remember you have to pay them back one day and finding a job is difficult.
Work as much as you can without falling back on your studies. Find a part time job at the mall or waiting tables, and use that money as your living money. You shouldn’t take out loans to cover your groceries or other necessities.
Minimize living expenses as much as possible. Live with roommates or find a small studio apartment. Most college town apartments have roommate matching.
Also, be willing to stretch out the period you will attend. This will allow you to work and still pay for tuition.
Make sure that your loan payments are manageable. Be mindful of payback, student loan debt can’t be erased even with a bankruptcy.
Don’t resort to credit cards. Credit card use is at an all time high among college students; don’t drown yourself in more debt.
Ask family members to help pay for your books. Most people will agree to this because the cost of books is very manageable compared to tuition.
Research different colleges and universities, $15,000 a semester for that private university may not seem a lot because you’re not paying it right away but think of it in a few years with the interest adding up.
Become a Resident Assistant (RA) at your dorm. RAs are lucky enough to receive free room and board and you can do it up until you graduate.
Participate in a sport that may qualify you for an athletic scholarship.
You can also get a teaching position at the university that will offset your tuition. And if you have children you can cover their expenses because you’re an employee there.
Take advantage of the education credit. This could create a refund that you could use to pay for tuition. Or better yet, if you do get student loans to help pay for tuition you can give this money to a family member that will allow them to take the education credit and then pass on the savings to you.
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