Students Needing Educational Loans

The SHOE comic in last Sunday’s local paper may have said it all.  One of the characters at 78 just made his last student loan payment.  Many of you may not be aware that students can now stretch student loan payments out over 40 years.  Just in time for your retirement or sending your own kids off to college they may be making that last payment on their own loans.

Years ago, students got out of school with $10000 or maybe $20000 worth of student loan debt.  Now, for some students that debt is $100,000 or $200,000 – yes that is an extra zero on each of those.  Is it worth it?

There are many students coming out with a Liberal Arts degree or a general business degree that have no idea what they want to do or how much they can make with that degree.  Let me go through a scenario that happened in my office a month or so ago:

Parents and their Senior (we will call her Ann) came into my office.  Ann wanted to go to XXX College at a cost of about $45,000 per year.  She knew precisely where she wanted to go and what she wanted to do.

Parents and Ann were in a position of not qualifying for any grants or free aid.  Parents had no savings for college and were still paying off their own student loans so were not in a position to borrow for their daughter.

So – we calculated if Ann borrowed 100% of her education costs for 4 years at the average interest rate, she would be looking at a $930 per month student loan payment for 10 years to pay back her loan.  Add in some rent, a car payment, cell phone, utilities and normal living expenses she would be looking at needing to make about $70,000 per year to pay her loan payment and live on her own.  From her first year out of school!

Now I posed the question, what you do want to do?  I want to do what my mother does, Ann replied.  Turning to Mom, I asked her what she made per year.  ”Well, I have been there about 20 years and make less than $55000 per year”, Mom replied.

This is the trouble kids and parents get in when they do not think about after graduation.   So many parents sign Parent Plus loans thinking the student will pay it after graduation.  But the students are unable to pay so parents cannot retire because they are stuck making loan payments.

How do you prevent this or lessen the burden?

• Consider community college or a 2 year junior college for the 1st 2 years.  They are more reasonably priced.  And how many employers will care where your Associates Degree is from, they want to know where your Bachelor’s Degree or Master’s Degree is from.
• Overload on courses to get through in a shorter period of time.  Many kids are taking 5 years to get a 4 year degree.  Do not let your child be one of them.  Make sure they are taking enough courses and do not drop too many.
• Consider summer school online at the school of your choice or take a class or two at the local college to get through in less time.
• Challenge courses so that you can to try and avoid having to pay for a class on something that you are already proficient in.
• If you have to take student loans, pay the interest on the loans rather than letting it add to the balance.  Think about it, if you add the interest to the balance then you end up paying interest on the added interest over and over again.  You can make payments much more reasonable after graduation if you make interest payments now.
• Require your child to look for scholarships for at least one or two hours a week.  Try Fast Web.com or Scholarship Search.com.  Do not pay for a scholarship service, you can find more than you could possibly fill out from by doing an Internet search.
• Consider having your child take a year to work first to earn his/her tuition or to go part time.  This can be especially useful if the student does not know what they want to do.

And the hardest of all – you may need to just put your foot down and say NO you cannot do go there.  I cannot pay for that and will not put you in that position.  If you as the parent put your foot down and you are the only co-signer of a loan, then your son or daughter will either figure out how to pay for it without loans or will decide maybe it is time to look somewhere less expensive to go.