Taking out student loans to finance college or a post-graduate degree has been a rite of passage for several generations now, ever since higher education became accessible to those outside of the upper class. By getting loans to finance your degree, you are making an important investment in your future – an investment, many would say, that is necessary to make these days.
But student loans have recently come under some valid and heavy criticisms. With skyrocketing college tuition rates and a stagnant economy, many graduates find themselves unable to land a job. Those that do are often underemployed, making them just as unlikely to tackle their student loan debt (which may prompt them to use payday loans). And with total student debt topping $1 trillion and interest rates set to double this summer, it’s no surprise that many are predicting the imminent explosion of the “student debt bomb.”
If you’re about to set off for college, or if you’re heading back to school for a graduate degree, it’s important to keep the current debt situation in mind. Specifically, you want to know the following: are student loans right for you? Are they worth it? Is this investment the right one? Here are three key questions to ask yourself when making this crucial decision:
1. What will be the true cost of my loans? A loan costs far more than its principle value. When assessing how much it will truly cost you once everything is said and done, use a loan calculator to add the interest over your intended payment cycle. Then, take a look at the average monthly payment you’ll need to make. On a $90,000 loan paid over 10 years, you’re going to be losing $1,035 on a monthly basis. This not only adds up to the total $124,286 value, but it also reflects lost money that could have gone to a mortgage, a car, or to other investments. It’s always important to keep this true cost in mind.
2. What is the risk/reward of the investment I’m making? As aforementioned, taking out student loans should be considered an investment in your future. So, just as with any other investment, you should consider therisk/reward factor before proceeding. Is your degree worth the amount you’re putting in? What would happen if you didn’t get this degree? Ultimately, when viewing their loans from this perspective, many students find that it is optimal to attend a cheap state school over almost any private university. This way they can get a degree – and, hopefully, a job – while avoiding a crushing financial burden and the possibility of restructuring debt down the road.
3. Have I explored all other financing options? Finally, before you indebt yourself to the federal government, make sure that you’ve pursued other financing options that may be more advantageous. This includes seeking out family assistance, applying for scholarships, and requesting financial aid.
Asking yourself these three questions will hopefully help you decide whether you’re ready to tackle student loans and the accompanying debt. While it was once a no-brainer to take out a few loans and get that degree, times have changed and the end-game debt can be far more crushing. Consequently, it’s important to think carefully about your plan before going forwards.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.