If you read this blog or know me at all, you know that I always am advocating for avoiding debt and paying it off as quickly as possible if you do have it. Student debt is no exception in my book. Other 'financial advisers' and even friends and family will justify it with you as 'necessary' or an 'investment in your future'. While that might be true with regards to getting an education, the debt so easily taken on is not. I came across an article today citing a study verifying the fact that it makes you poorer than those who do not get student loans.
When you get student loans, most of the time all you think about is how much it will end up costing monthly over the life of the loan. What you fail to take into account is what it does to your overall financial picture. It ends up being much bigger of a toll than how much you end up paying. For instance, what do you lose by making those payments instead of investing more in retirement or a house? Suddenly, you realize that you're not just losing what you're paying out every month, you're losing hundreds of thousands of dollars in compound interest over that time. When you look at things in this light, I don't know how you could go through with it, no matter how much you want it or think you need it.
Now that you are sufficiently sick about that, let me remind you about some of the other pitfalls of student loans. Student loans aren't like ordinary consumer debt. They are with you forever, until paid or you die. Period. They are in the same class as IRS debt because they survive bankruptcy. Another huge thing to consider is that you might not finish college or your graduate degree. Nearly half of all undergrads drop out before completing their degree and an even smaller number actually finish on time, costing much more as well. Graduate degrees don't fair much better. Even in fields with the lowest drop-out rates 1/3 still don't finish. If there's anything worse than having a pile of student debt, it's having that debt AND no degree to go with it.
For these reasons, don't go into debt for an undergraduate degree. If you want to seek a graduate degree, be creative with how you pay for it. Find a company who offers tuition reimbursement. If you want to go to medical school, did you know the army will pay for every penny? This is with the condition that for so many years afterward you'll work for them at a reduced pay. I think that's definitely worth considering for $250,000 of free tuition.
Sometimes it even means you delay your education goals. I have some rock star friends who are currently cash-flowing an MBA program. Instead of just going into $60,000-$80,000 in debt, they planned for it for many years. They lived super frugally while they had 2 incomes and continued when they had their first child and she stayed home. We're talking no eating out, no cable, no internet at times, no expensive shinny new cell phone plan, shopping at thrift stores, minimal gifts, etc. As a result, they bought a house on a short sale with a sizable down payment, fixed it up, and lived there for a few years. When they were ready to go for it, they sold the house, moved into an apartment (with 2 almost 3 children) and are using the money to pay for school. They have completely broken the mold on this subject, but are reaping the benefits of being so. Their sacrifice and hard work in the short term will make them multi-millionaires in the long term.
Personally, I know how hard it is to resist using student loans for easy money. I also know how hard it is to pay them off. When my husband graduated from college nearly 10 years ago we had almost $14,000 of student loan debt. This might not seem like a lot compared the national average, but it was hard for us. We were broke. It took him 6 months to find a job in his field, which he then lost 4 months later and then was unemployed for 4 1/2 months. It was a very stressful time, but we battled through it and continued to make the minimum payment. Over the next few years we made the mistake of going into more debt. We bought a car, had our first child and bought a house stretching us even further. By the time we got our act together, we still owed over $10,000. But, by the time we were aggressively attacking it, we paid off the last $8,900 in just 10 months. As an added curve ball, a few months into those 10 months our house flooded and we had an insurance deductible to pay for. So we ended up selling our second car to get us back on track.
My point in telling you both of these stories is to give you encouragement that it can be done. Whether you have $10,000 in student loans or $100,000- KEEP GOING! Work extra jobs, cut back as much as you can. Sacrifice, hard work and above all patience will always pay big dividends down the road.
So what's the bottom line? If you don't have student loans, don't get them or certainly don't take them on lightly. If you already have them, get on a plan to pay them off as soon as possible. Don't be lulled by tax deductions and low interest rates. It's always worth it to work as hard as you can to pay them off quickly. I have coached couples and have friends and family from both ends of the spectrum and have seen the heart ache that comes from student loans, and triumph that comes from a lack thereof.
I leave you with a few things to consider if you are still considering taking out student loans:
1-Think long and hard about it. Maybe the timing is not right.
2- Make sure you get that degree.
3- Know that it will stunt your financial potential to some degree.
4- Don't get a case of 'Docitis'. After you graduate and get a job, live like you're still a broke college student and plow through those loans as fast as you can. This means no fancy cars, vacations and house. The faster you can get them paid off the faster you can get your future back on track.
