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Avoiding Student Loan Pitfalls

20110905 - college loansAfter high school graduation, there are all kinds of enthusiastic statements that come your way. You’re on your way, the world is your oyster, you know the drill. Yes, the world is your oyster…but seafood is expensive. All the aspirations and ability in the world won’t carry you very far if you can’t pay for college.

So where do you start? Your super-involved, straight-A classmates may have scored free rides to their institution of choice, but those opportunities are rare. And with the economic downturn, foundations and private scholarships are cutting back. That same economy has made the labor market much more competitive, pitting uneducated applicants against educated ones with predictable results. In many cases, there’s no doubt that you must go to college, so you’ll ultimately have to figure out a way to pay for it.

For many students, then, the biggest and most reliable source of college funding is student loans. Thanks to recent bad press, the term may sound like a dirty word to many prospective college students. But the fact is, a properly managed student loan plan can be a very effective way to finance your education. Just follow some simple tips and other ideas from this guide to college borrowing.

Borrow Only What You Need

Before you approach a lender, have hard numbers. Don’t estimate costs or guess at fees. Know what it will cost for you to attend school. Remember that every dollar you borrow is a dollar you have to pay back. There’s no need to finance a top-drawer lifestyle on borrowed money.

And be realistic about your own contributions. Consider your employment options during holiday breaks and even during the semester. While it can be difficult to maintain a job and do well in school, a job schedule that properly balances school time and work time will result in extra money that will reduce what you have to borrow. That also means you should borrow semester by semester, adjusting amounts based on the money you have available, instead of borrowing larger amounts in advance.

Think About Returns

Education is an investment. You are committing time and money now in order to reap rewards of money and satisfaction later. The satisfaction is harder to estimate up front, but there is plenty of information about potential earnings out there. Going to an expensive private school to study for a degree that will likely yield a lower salary is financial suicide.

And by the same token, consider a career field with a high likelihood of growth, not one with stagnant job prospects. It’s pointless to qualify for a job that pays $100,000 if nobody is likely to be hiring when you graduate. Think about a career that matches your interests, pays workers proportionate to the cost of the necessary education, and has good prospects for future hiring.

Choose Your School Carefully

As noted above, a degree from a prestigious institution is an expensive wall decoration if it can’t get you a job that will allow you to pay off your student loans. Unless you have real reason to expect a very high-dollar career, you should consider staying with public institutions that are near your home. They are less expensive and have larger networks of alumni and donors who can help you get gainful employment later on.

There is great prestige in many private universities, of course, but a quick survey of many workplaces would likely find their graduates working side by side with public university graduates for the same money. Yet their student loan balances are much larger. Again, it’s an investment; don’t sink more into it than you can realistically expect to get back.

The endless stream of electronic and postal mail begging for your enrollment at a variety of institutions is exciting. But keep in mind that a spot on their rosters costs money. Don’t get caught up in the trappings of shiny brochures depicting tree-lined campuses. Be practical and make sure your college experience is an asset instead of a liability.

Are you avoiding student loan pitfalls?

Money

AUTHOR Derek

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.

2 Comments

  1. Solid post and timely advice! I’ll like to add, with my own experience with student loans I find that sometimes I have the urge to want to borrow a little more than needed. However realizing that every dollar you borrow you will need to pay back, has aided me with fighting my urge to borrow more.

    • That is a common urge, David, especially since at the time of borrowing most don’t have any experience paying back any portion of their loans. So, they really don’t understand how much money $10,000 is. Compared to their friend that has $50,000 in student loan debt, $10,000 doesn’t feel too bad! But, every dime borrowed will need to be paid back (plus interest), and let me tell you, it isn’t easy!


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