Student loans are a constant conversation in my world. Not my student loans, really, but other peoples’ student loans. Not a week goes by that I don’t have a thoughtful, lengthy conversation with someone about the burden of his or her student loans and how they affect his or her life. And I’m not talking specifically about attorneys, like me, either. I’m talking about my friends who are college graduates who put themselves through school by using student loans. From teachers to doctors and every profession in between, I’m hearing the same thing: “I wish I would have known how my student loans would affect my life before I went to college.”
If you are considering using student loans to pay for school, then there are valuable lessons about tuition, money, income, and careers that so many of my friends and I wish we would have known. I’m here to share these little nuggets with you.
College Is Expensive
- College is really expensive. That’s worth repeating. College is REALLY expensive. It is more expensive than you will ever realize as a student because you haven’t been working enough to appreciate how much work it takes to earn a certain amount of money. This is why it’s incredibly important to consider align your career path with your college choice.
- Colleges want your money – badly. It’s very expensive to run a college, and in order to stay afloat colleges need you to pay up.
- The “sticker price” for college is much higher than what you may actually have to pay if you qualify for financial aid. However, you may end up paying a lot more than you can afford to pay back depending on your career choice.
Student Loans 101
- Student loans are very unique because, unlike most other debt, they are not dischargeable in bankruptcy (most of the time). This means that if you get into so much debt that you have no other option but bankruptcy, even after a bankruptcy, your student loans will still be there.
- There is no collateral with student loans (similar to credit cards), which means the debt is unsecured. With a house that has a mortgage on it, if you can no longer afford it, you can sell it. There is no selling back your education. You’re stuck with it forever.
- Private loans are incredibly risky because the government does not own/control them, and therefore, they are subject to the rules and restrictions of the provider. Private loans are usually not forgiven upon death (which is why you hear horrible stories about parents owing a lot of money immediately due upon their child’s death). This is why you need to have life insurance with private loans. Furthermore, private loans cannot be put on income-based repayment plans that federal loans can be put on, unless that particular servicer offers such plans (unlikely). They do not qualify for the student loan forgiveness either.
- Refinancing student loans is a hot trend right now. People refinance student loans in order to lower their interest rate. Be careful with this. When you refinance federal loans, you convert them into private loans. All of the federal protections go away. That is to say, you take on a lot more risk with private loans.
- Money is a reality that most of us don’t appreciate until after college. This is a huge mistake! Money may not seem sexy to you, but it will crush your soul in the working world post-college if you don’t start learning about it now. A simple way to start, is by taking inventory and getting on a budget.
- If you live off your student loans to maintain a certain standard of living, you could be paying for that for years (like 25+ years) to come.
Income is Really Important
- Your income, however you earn it, is a huge factor in paying down your student loans. Consider the amount of loans that you take out compared to your potential income based on what you do. If you are going to be in public service, your loans should be really small. If you are going to be a doctor, your loans can should be a lot higher. The point is not to take out doctor-amounts of student loans for a job that doesn’t pay like a doctor. Be thoughtful and smart amount what you want to do to earn an income and your subsequent ability to pay your loans.
- You don’t have to earn an income from your time. You can earn passive income (more on that here), but that way of earning money is completely different than what you’ve probably been taught. It goes against trading your time for money. It’s arguably the best way to build wealth, and I highly recommend it (see my favorite books on the topic here).
Do What You Love (and Make Money)
- Do what you love. Follow your heart. Choose a career you’ll enjoy. That’s what everyone says right? Right. And they are right. You want a career that makes you happy. But after you get somewhat of an idea what you want to go to school for, you need to align your career with your college choice in terms of money. For example, if you want to be a teacher, you should not take out $75,000 in private student loans because your salary will be very low initially. Also, in case you’re thinking you’ll go on the forgiveness program that’s in place for public servants (teachers, government employees, etc.), that only applies to federal loans; private loans do not apply. So, be sure to consider the type of loan you’re taking out when you decide on your career.
- Money is nice to have and makes life easier. How much money you want is a personal choice. Be honest with yourself about how important a certain standard of living is to you. Consider what you want to be able to afford in life. Thoughtfully align your consumerism and standard of living with your career choice.
- When choosing a career, consider the venn diagram that has the market place in one circle and your passions / likes in the other (see the full post on that here).
- The earnings for college graduates are much higher than non-graduates. Similarly, the unemployment rate for college graduates is much higher than non-graduates. This basically means that you are more likely to be “better off” if you go to college.
- Just because you should probably go to college doesn’t mean you should get into massive, crippling student loan debt. It means that you should figure out how to go to college in the least expensive way. Some ideas are scholarships, grants, and attending community college for two year and then transferring to a four-year school. Do whatever you can to lesson the amount of student loans that you have to take out. Certainly live like a “college student” in a crappy, small apartment, with roommates. J You want to live like a student in college so that when you’re in your career you don’t have to live like a student!
- Most 17-18 year olds choose to go to college and begin attending college before deciding what they’re going to do. This was me and it may be you. That’s okay and perhaps to be expected. But if you’re reading this while you’re still making choices about student loan debt, you need to consider your financial choices as you go through school. If you decide you want to be a social worker and you’re at a private university taking out student loans, you should consider changing schools and finding a way to get your education cost down. The idea is to make sure your education costs are in line with your projected potential income.
- Money is important. You may not realize it, but money is really necessary to survive in the Unites States. We live in a very capitalistic society and that’s not going to change. So, you need to figure out how to play by the rules in order to be successful. If you want to be pursue a career in public service, make sure you find ways to make college really inexpensive for you.
A Final Note!
I PROMISE you that my current friends and acquaintances would have loved to know this information 10 years ago, before they dug themselves into massive debt. I would have loved to know this stuff 10 years ago. The problem is that you’ll never care less about your student loan debt than you do before you get in it. If you can combat that by knowing that eventually you will have to repay your debt and it will affect your life, then you may prevent a lot of financial heartache.
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