It’s no secret that college has become more and more expensive in recent years, with tuition typically outpacing inflation in other areas. This has led to more and more students turning to student loans to finance their education.
Student loans now represent the second highest consumer debt category, right behind mortgage debt. Borrowers owe a whopping $1.5 trillion in student loan debt in the U.S. alone. Individuals graduate owing, on average, $37,000.
My husband and I graduated with a combined $110,000 in student loan debt, which we are still paying off. For us, the debt has been manageable due in large part to our high salaries. However, neither of us truly thought ahead when we were applying for student loans. While I wouldn’t call student loans predatory, they do target young adults who are less likely to understand debt.
Here are five things that I wish I understood before taking on student loan debt.
5 Things You MUST Know Before Applying For Student Loans
1. Student Loans Have An Opportunity Cost
What exactly is an opportunity cost? An opportunity cost is simply the loss of potential gain from an alternative solution.
While you’re in school it is so easy to forget that eventually you will need to pay your loans back. Depending on how much you borrow, you could end up with crippling monthly payments, particularly if you can’t find a good job after graduation. This can prevent you from being able to save money for a home or start a family.
It might be impossible to know what your budget will look like after you graduate, but just being aware of the opportunity cost can help inform your decisions on how to finance your education. Many students graduate without realizing the ramifications of the amount of debt they’ve taken on until the first bills start coming in, and by that time it is too late!
2. Student Loans Are NOT Free Money
The average interest rate for undergraduate student loans is just under 5%. What does that mean for a borrower? Well, it depends on the rest of the terms for the loan. However, the universal truth is that you will pay more over the life of the loan than you borrow.
Every dollar you borrow will cost you about twice that to repay. Keep that in mind when you are tempted to spend your student loan funds on unrelated expenses.
I spent some of my student loan money on things that weren’t related to my education, which I regret. Don’t spend your “excess” student loan disbursements on stuff. You should only spend your student loan money on your education, period.
3. You Can Take Many of Your Classes at Community College
Real talk. There is no substantial benefit to taking all of your courses at a four-year university. The university won’t tell you that of course, because they charge a ton of money per credit hour and don’t want to lose your patronage.
You have options for a more affordable education. One of the smartest things students can do is take as many of their courses at a local community college as possible. I did not do this and I deeply regret it. For me, the savings on my education would have been over $20,000! That’s a hefty sum of money!
After you graduate nobody is going to know (or care!) that you took some credits at your community college. Additionally, I’ve found that community college courses actually end up being a better experience because the class sizes are usually much smaller than at four-year schools.
Before you take credits at your community college, just make sure that they will transfer to the university of your choosing. Finally, check with the university to make sure you don’t take too many courses at the community college. Most universities require you take a certain amount of credits with them in order to graduate.
4. You Aren’t Guaranteed a High Paying Job After Graduation
While it’s easy to think about the amazing high paying job you’re going to have once you graduate, that isn’t always the reality. The current generation of college students faces an uphill battle when it comes to securing that sweet job as more and more companies turn to automation and artificial intelligence.
You may not land a high paying job right out of college, but you better believe your lender will expect you to pay up. While you can choose an income-based repayment plan, all this means is that you will be in debt longer. Additionally, an income-based repayment plan does not mean your terms have changed. If you are not able to make the payment for the interest it will continue to add to your student loan balance.
Work hard in college, get internships in your chosen field, but plan for the worst when it comes to job prospects and be realistic about what your salary will be. The average starting salary for a recent college graduate in 2018 is $50,000. Keep this in mind, even if you are going into a field that traditionally pays more.
5. There Are Other Ways to Fund Your Education
With the exorbitant cost of education, it’s become standard practice for students to take out student loans to help with the cost. However, you don’t NEED to take out student loans in order to pay for college. There are a variety of other ways to pay for your education.
If you are already working, your company may offer tuition reimbursement. UPS is a company that advertises for Package Handlers by stressing that they offer this benefit for students. You can also apply for scholarships, even if you are a non-traditional student. I wish I had done this when I went to school, but I didn’t think I would be eligible.
You can always work a part-time job and use that money toward your education. While it’s tempting to just sit back and let the student loan windfall handle your expenses, the smarter thing to do is live frugally and put more of your income toward your education. If you’re able to work for your university you may be able to get an additional discount on courses along with your paycheck, which is a win-win!
Finally, the military offers great benefits for those willing to make the huge sacrifice and enlist. I have several friends who served and who benefited greatly from the GI Bill when they went back to school.
The Bottom Line
Borrowing vast sums of money to pay for college is ridiculously easy. It really just requires that you fill out and sign some paperwork. But it’s important to remember that these are loans that will need to be repaid. If you use student loans to fund your education, always ask yourself if you really need that much money.
A college degree can be a great investment for your future, but student loans can saddle you with debt that will have a dramatic impact on your life years after you graduate. Research all your options carefully before you put yourself in debt for your education – you have more than you think!
Did you take out a ton of student loans? Share your experiences and suggestions in the comments!