Should You Intentionally Go Into Student Loan Debt?

by Broke Professional on October 28, 2011 · 8 comments

The job market has forced a lot of people to take a long, hard look at their education background. Remember when a high school diploma was optional? If not, your parents or grandparents probably remember. Now, without at least a bachelor’s degree, you’ll find your application quickly meeting the waste basket. Millions of Americans are taking the new found time on their hands from unemployment to venture into higher learning. Even NBA players like Russell Westbrook and Baron Davis, who are currently locked out, are finishing what they started, taking college classes. The basketball players may have the money to continue their education, but not everyone does. If you can’t pay for your tuition out of pocket, should you intentionally go into student loan debt? You should ask yourself a few questions before making that plunge:

  • Have you exhausted all possibilities? Student loan debt should truly be your last resort for financial aid. Look into scholarships, grants, and even work study. Fill out your FAFSA, as you may be surprised how much assistance you’ll be able to get without going in to debt. Also, try to save up to pay for your tuition out of pocket. Tuition payments will hurt a lot less without the interest rates attached.
  • Is this the most affordable option? In many cases, you can find the educational program you’re looking for at a much cheaper rate. Check to see if your local state college offers courses or if there’s a certificate program you can participate in for a fixed cost. You may only need relevant experience rather than a specific educational background.
  • Can you afford the payments? Remember that loans are money that you’re required to pay back. You’ll be on a payment program, but will you be able to pay that money back? Do you have the income to make the minimum payments? Will your job allow you to make additional payments to clear your debt faster? The faster you pay off your loan, the less interest you’ll have to pay.
  • Will your future job pay for your education? You won’t want to pay more for a degree that isn’t going to pay off in the long run. If you’re going to a school that’s going to cost $200,000 to attend, but the job you plan on getting only makes $30,000 a year, it’s going to take you almost 7 years to pay it off, and that’s if you have a 0% interest on your loan (highly unlikely) and if you put every single dollar you make towards the debt.
  • Can you finish school faster? School may bring on a lot of pressure, but for some people it’s a breeze. If you can shave down the amount of time you’re in school, you can reduce the costs to attend. Tuition is calculated per credit up to a certain amount of classes. If you take a on a full load at school, you may be able to reduce the time you’re in school by a term or even a year. That’s 1 less term or year you have to pay for school, which means less student loans.
Be sure you have the answers to these questions before you go into student loan debt. Do research regarding your other financial options, your academic workload, and your career path. You may have a change of heart as to what type of education you should get.

{ 6 comments… read them below or add one }

1 Paul @ The Frugal Toad October 30, 2011 at 12:49 am

An affordable way to a 4 year degree is to attend a community college and take general education credits that will transfer to a 4 year University. With the cost of a college degree rising an average of 7% per year, you can save a substantial amount of money by attending a community college.

Reply

2 Robert @ The College Investor October 30, 2011 at 11:13 am

Always weigh the costs and benefits. A student loan is a loan against your future earnings, so make sure that your future earnings can handle the debt load.

Reply

3 Paula @ Afford Anything October 30, 2011 at 1:58 pm

I would absolutely be willing to take on student debt to go to an Ivy League school. I think the networking opportunities, the connections you’d make, and the mentorships you’d form would be incredibly valuable. So much of success is based on “who you know,” and a top-tier school would be a way to meet those people.

Reply

4 shanendoah@The Dog Ate My Wallet November 4, 2011 at 11:52 am

If you can get into an Ivy League school, the liklihood that you will need student loans is next to nil. The Ivies all have really great endowments and offer significant FREE financial aid to students who might have trouble affording the tuition. So unless you’re getting in based solely on legacy status, or your family is quite wealthy, the school financial aid office will work with you to make sure you can afford it without loans.

Reply

5 JG Larvan November 3, 2011 at 12:57 am

If I can go to an Ivy League school, then maybe I can consider getting a student loan. Unfortunately, there are factors that should also be considered. It’s a risk but if you think you gain more and would be able to pay it off eventually, then go for it.

Reply

6 shanendoah@The Dog Ate My Wallet November 4, 2011 at 11:48 am

As my husband is back in school full time due to unemployment, this is something I know a bit about. If it is possible, definitely start at a community college- not only are they cheaper, but right now there are specific state and federal grant programs that fund people on unemployment going to community college. And depending on the area you live in, some community colleges are even able to offer Bachelor’s degrees.
Also know that there are different kinds of student loans- my advice to anyone and everyone is to never take out a private student loan. You have very little protections and they have a lot of wiggle room with what they can do to your rates.
If you have to take out loans (and I took out loans for all of my education), stick with the federally guaranteed student loans. If you are offered money on the SUBSIDIZED student loan, interest rates are currently capped at 3.4% – that’s an amazingly good rate. If you just need a little bit of extra help, and you qualify for this, it’s the best deal you’re going to get. Also, interest is NOT charged on these loans while you are in school at least half time.
However, if, like with us, you have a spouse who’s still making good money or you made good money last year, you may only qualify for unsubsidized loans. Interest rates for those are currently capped at 6.8%- which is less than a credit card, but not great. Only take unsub money if otherwise you would have to put books or something on a credit card that you couldn’t quickly pay back. Interest starts accruing on unsub loans from the beginning, so if you have to take one out, remember- there’s no penalty for paying early.
For either of the federally guaranteed loans, you aren’t required to pay while you are in school at least half time and for 6 months after you leave school. But if you can afford to simply pay the interest +$5 every month (or just $5 if you have the subsidized loans) while you’re in school, that’s a great way to get a little bit ahead.

Reply

Leave a Comment

{ 2 trackbacks }

Previous post:

Next post: