Are you paying way too much for your college education?
Some people have thrown all logic out the window when it comes to their education. They are stupidly borrowing huge sums of money in the form of student loans to pay all of their college expenses. I’m sorry to be so blunt, but it is true!
Occasionally, a blogger writes a post that they truly wished everyone would read. This is one of those posts for me. I really hate hearing that people are burying themselves in tons of student loan debt unnecessarily.
I believe this is a mistake that most will live to regret and regret in a big way. So, I’d ask you to please forward this to any parent or student you know that might benefit. Thanks!
Two real-life examples of student loan debt gone bad
My fervor over avoiding student loan debt peaked recently as I was listening to The Dave Ramsey Show on the radio. I heard two of his callers give heart-breaking details of their situations.
First, let me say, while I strongly believe that a college education is a good investment, it is not priceless! I believe paying for college with student loan debt is a recipe for financial disaster! Here are two great examples of where things went terribly wrong!
Student Loan Debt – Situation One
The first was a 23-year old female that explained she was engaged to a 24-year old young man that had $90,000 in student loan debt! He attended a private university to obtain a degree in Spanish and financed the whole deal with student loans.
This poor couple had debt equivalent to a home mortgage and they weren’t even married yet! On top of that, his degree isn’t likely to earn him a big salary. They are going to be saddled with paying off his student loans for years!
This young couple will be starting life in a deep, deep hole that will severely limit their options and could become a sore spot in their marriage. Sad, but true!
Student Loan Debt – Situation Two
The second caller I heard was a middle-aged, married man that works in maintenance for a school district. He never completed college, but he did attend for awhile. His wife is a teacher with a Master’s Degree. Their combined household income is about $6,000 a month. It all sounds pretty good so far, doesn’t it?
Well, this couple has accumulated $180,000 in student loan debt! They feel handcuffed in their lives because they have no financial breathing room. Ramsey pointed out that even if they live on rice and beans so they can pay $30,000 a year on this debt, it would still take them over 6 years to dig out of this mess! What a shame!
My heart truly goes out to these people. It saddens me to hear how financially bound they are due to student loan debt.
Why I feel so passionately about avoiding student loan debt
It seems that some people look at piling up student loan debt like it is a necessity akin to medical bills. This is simply not true! I think they go into it without thinking the whole thing through. Here are at least two things they need to consider:
1. Student loan debt puts you in a financial hole right from the start
In most cases, you have to start repaying student loan debt as soon as you leave school regardless of whether or not you ever get a degree, are satisfied with your degree or find a job. This puts a substantial load on you just as you are trying to get some financial traction.
Failure to repay on time will result in damage to your credit score which can cause you additional trouble such as difficulty getting a job, getting an apartment and buying a house!
If you neglect repaying your loan long enough, it will go into default which means the total loan becomes due immediately. This can result in legal action, wage garnishment, loss of professional licenses and loss of tax refunds. Think seriously about what you are obligating yourself to before taking out a student loan.
Furthermore, you cannot get out of most student loans by declaring bankruptcy. You are going to be stuck with this debt for a long time if you sign on the dotted line! Student loans are not a quick and easy answer to the problem of paying for college!
2. Your potential earnings might not offer a good ROI
Some would say that student loan debt is “good debt”. They would say that you are making an investment in your future. Well, good investors look at their potential return on investment or ROI before they commit.
A good investor only puts his/her money into something that offers a good ROI. In both of the situations above, the potential earnings as a teacher or Spanish major do not come even close to justifying the amount of student loan debt. In addition, these individuals could have earned the same income with a much smaller initial investment using some of the strategies I suggest later in this article.
Furthermore, the repayment of student loans is likely to delay investments for retirement and wealth-building. This has a big cost! According to this article on MSN Money, if a 22-year old puts just $3,000 in a Roth IRA they can expect it to grow to over $95,000 by retirement age assuming an 8% return. If this same investment is delayed just ten years, the typical length of a student loan, the nest egg will only be $44,000 which is less than half!
Student loans are not a good way to finance your investment in your future! They drain you of your financial power and leaving you feeling helpless.
Seven alternatives to student loan debt that you should try
Where there is a will, there is a way to go to college! Ruling out or at least minimizing student loan debt is not that hard and should be seriously considered to avoid the mistakes Dave Ramsey’s two callers made.
Here is some of what I and others suggest:
- Go to a junior college for the first two years – Community colleges offer much cheaper tuition and let you get the basics out of the way in the first two years without it costing so much. Very few employers are going to care where you went to school during your first two years. They just want to know where your degree is from. Also, attending a local junior college might let you avoid the additional cost of room and board.
- Go to a public university instead of a high-cost private institution – Unless you get a scholarship that pays all or most of your expenses, then I highly suggest choosing a public university versus a private one. The savings can be immense and the differential in earnings later in life is minimal.
- Exhaust every option for scholarship, grants and other financial aid – Be tireless in your pursuit of free money that you do not have to pay back. There is a ton of good information available on the Internet about how to do this. The effort can save you thousands of dollars up front and a lot of heartache later.
- Work while you attend school to help pay expenses – It is possible to work part-time or full-time while you attend college. Numerous people do it. The money you earn will go directly towards offsetting your expenses.
- Seek out an employer than offers tuition assistance – Many employers have tuition assistance programs that will help you pay for a degree in your area of employment. There are also programs that pay you to go to school if you commit to working a certain number of years in a rural or under-served area upon graduation. This is a great way to work your way through school!
- Take advantage of the G.I. Bill to earn your degree – Consider joining the military so you can take advantage of the new G.I. Bill. The post 9/11 bill will pay tuition, a monthly living allowance and a book stipend of $1,000 per year.
- Save money in advance to pay for college – I know this may seem obvious, but since so many fail to do this I felt it was worth mentioning. If you still have time, save as much money as you can in advance to pay for school. Do some research and be realistic about what you will need to pay all your expenses. This is probably the best alternative there is to student loan debt!
Avoiding student loan debt is priceless!
You will save yourself a lot of financial heartache and regret if you simply exercise some in creativity in figuring out how to pay for college. Student loans are not the easy way out!
Again, I hope you’ll share this with as many people as possible in hopes that it helps them avoid this killer financial mistake!
Photo by jennifercw
I know what I’m about to say is only one point in your post, and I don’t want to alarm anyone, but I feel like I need to clarify something. I’m a career sailor and I wouldn’t recommend joining the military JUST to get the GI Bill benefits. Yes, they are crazy awesome, and I can’t wait to use them (or let my kids use them) upon my retirement, but I would like to caution your readers to make sure that there are more reasons than just getting the GI Bill before they join the military. I’ve unfortunately seen a number of young sailors join up for college benefits and find that they didn’t have enough reasons to join in the end. It creates disillusionment…a sad situation.
Having said that…the GI Bill is definitely a huge benefit. Had it been around when I first joined, I wouldn’t have become a career sailor.
.-= Dan´s last blog ..My Mentor =-.
I agree with you totally college is not all it’s cracked up to be. Starting life with a massive amount a debt is really stupid it would be better to just go out and get a job
.-= Faramarz – Anxious Candy´s last blog ..2 Ways To Diminish Your Anxiety and Boost Your Power. =-.
I don’t think you can reduce a good education to a financial ROI. There is an equal and in some cases stronger personal fulfillment element: quality of life, doing what you truly love, finding joy in the educational process itself, contributing to society in the most powerful way you can, finding your niche, doing good work, becoming a specialist, etc. Sometimes the salary you make at the other end is not commensurate with the amount of money you spent on your education, certainly, but if you’re left with a job that keeps you happy, productive, contributing something important and remaining interested in your field, I cannot see the problem with assuming the payments for this result.
I have about $70,000 in student loans after a BS. and a PhD. Research scientists are notoriously underpaid and I knew this going in to the career, but it is entirely worth it to me to know that my work is important and my career makes me incredibly happy. I feel I got the better end of the deal. Some have paid $70,000 for a luxury car – while for that same money, I got a key that unlocks a door that so many people look for: a dream job and career happiness.
My government loan is at 2.0%, if I die it is not inherited as debt for my children, the interest is tax deductible, there are many positions I could take that would “forgive” part to all of the loan, and if ever I fell on truly hard times I could defer payment without ruining my credit. I feel that this is the best debt I could have assumed – far better than a mortgage.
If you reduced the equation to just money, you could probably conclusively prove that my student loan was a “bad deal”. I left grad school with the $70K in loans and my first job offered me $48K a year salary. And yet I’m very happy with what it bought me and am more than willing to sacrifice to return the money. It’s the only bill I never flinch at paying because I know I got my money’s worth.
@Dan – I completely agree that joining the military solely to get the GI Bill is a bad idea. In addition, there are obviously other serious considerations one should take into account before joining the service. However, serving in the military is definitely a legitimate and honorable way to earn a college education.
@Faramarz – I place a high value on college education. I simply believe it is possible to get an education while avoiding debt. Of course, working for a few years to save up the money is a great idea!
@emma – I agree with you that there is more to consider regarding a college education than just financial ROI. All the justification you mentioned above is spot on and the very reasons that I think one should invest in a college education despite how much it costs.
However, I think you can accomplish all of that AND be financially wise at the same time. Wouldn’t it have been great to have graduated with your PhD AND avoided all the debt in the process? You could enjoy all the benefits without having a $70k ball and chain around your leg!
I certainly would not reduce a college education to just a finacial equation, but I also would not eliminate all financial considerations either. Again, I think a person should look at it from a well-rounded position.
I don’t suggest avoiding college. I suggest avoiding student loan debt. As I pointed out in the article, I think there are a plethora of ways to do this.
Thanks so much for contributing your thoughts!
Well said! My wife and I decided to discontinue her work on a Masters degree after three classes, because we just couldn’t see how it would pay off in the long-run… with or without student loans. Most people look upon that decision as a bad one, but they never factor in the final cost and the missed opportunity cost. They only see a potential “higher” salary.
Also, for the classes my wife did take, she received tuition assistance through her job, which covered 70% of the cost. So that’s another good alternative for avoiding student loans. It’s only once she left her job to stay at home with our newborn that she quit school, and we decided student loans are NOT a good idea from a financial perspective.
I absolutely agree with this! I have so much to say, but everything I start to type would probably offend someone, so I’ll keep my mouth shut. I just wish more people would think about what their degree will be worth and whether they will even be using it in the future before they take out these huge loans.
Oh so on the money here. I heard another call not too long ago where both the husband and wife went to Chiropractic school that was ridiculously expensive over $200,000 for the both of them, and then the wife got pregnant immediately and has never practiced. All your eggs in one basket for sure.
I love your tips too. I have some good friends that seem to feel that education is the only way that they are going to get the job that they want, rather than focus on building some good experience. There’s no replacement for doing something especially if you are trying something on for size.
If you can’t afford college right away there’s nothing wrong with working for a time and you just might find your passion outside of school. Go back later and you might appreciate it even more.
.-= Paul @ Fiscalgeek´s last blog ..Sinking Funds: taking Budgeting to the Next Level =-.
Me and my son decided to discontinue her work on a Masters degree after three classes, because we just couldn’t see how it would pay off in the long-run… with or without student loans.
http://studentsblog2.blogspot.com/2009/10/tips-on-how-to-avoid-debt.html
I’m totally with you on this one! I have $30K of it and I hate having it. Totally a weight on my shoulders. Even more now that the payments started up!
I do think if a child is going to get a college education then to try all avenues before considering a loan. I wish I was taught that. I jumped at a student loan first chance without thinking. It was free money to me. WRONG.
My aunt has a Master’s in Fine Arts, boggled down with student loans (now in her early 60s) and said that she WOUDL NEVER DO THAT AGAIN!
Great post!
.-= Money Funk´s last blog ..Christmas Gifts Under $10 =-.
I love that you pointed out the retirement aspect. I kept hearing that I should be saving as much as I could when I got out of school for retirement. After paying my student loan each month, there wasn’t anything left to put toward retirement and I didn’t have nearly the debt of most of my friends. No wonder Social Security and Medicare are scheduled to run out of money before I can receive either. People are too busy paying for the education that got them job they will retire from to actually save anything to enjoy retirement.
I totally agree that a great job you love can be worth a lot, but everybody also dreams of a nice relaxing retirement when they can do all the things they love. Early retirement may be a trade off for having a job you only somewhat like during your working years. It could easily be the difference of retiring at 50 and retiring at 80.
There are also a lot of credit-by-exam program through which you can get college credit, like the CLEP exams. A lot of people study for these exams on their own and save a lot of money on college that way.
cpascal´s last [type] ..Low Cost Online College Courses
You are right! College education shouldn’t be considered priceless! There are definetly more ways out, rather than getting into a huge student loan debt!