Here’s the lowdown. Debt is owing more than you have. Simple as that. There are people who say some debt is good debt (like mortgages and student loans – things most people are likely to use to get ahead in life) and there are some people who say all debt is bad debt. Either way, owing more than you have is debt.
And how do we get there? I think this is sort of interesting because soooo many people have debt. Honestly, when you factor in the “good debts” like mortgages and student loans, there are few people who don’t spend at least part of their lives paying off their Pete.
Let’s start with student loans, since this is where most people first dance with debt. The cost of college is skyrocketing well beyond what people expect from inflation, but we’ve set up a system where people believe they need to go to college to get ahead. This is proliferated by the fact that many companies have drunk the Kool-Aid too. So, in many cases, you do need a college degree to go far in life (unless you’re a kick butt entrepreneur or something, in which case, more power to you!). However, most kids right out of high school overlook the many thrifty ways to get an education inexpensively – starting with working your butt off through high school and getting scholarships. Honestly, even just working your butt off your junior and senior year applying for scholarships is going to make a difference. Femme Frugality recently wrote a great post on how to make scholarship hunting your “job” before heading off to college. Other options that keep costs down include attending two years of community college. I know in New Jersey around the time my brother graduated from high school, if you were a certain top percent in your high school class and maintained a specific GPA, you were guaranteed acceptance into Rutgers after completing your Associates degree at a community college. One year tuition at Rutgers for a commuter is $13,499 and for a resident student it’s $25,077. At Union County College (our county), tuition for a year is $4,080. Over the two years at county college, where you can complete pretty much all of your general education classes you can save over $18,000. If you did this instead of going to Rutgers and living on campus, you would save even more.
So why are people going so far into debt for college? I think it has a lot to do with having everything handed to us growing up, so we expect college to be no different. We just sign the loans, don’t keep track well and figure it’ll all work itself out. Sorry, I know I’m kind of a harsh critic of my generation at times, but I really do believe the fact that we’re given almost everything we want when we want it has a lot to do with colleges ability to hike tuition as high as they have.
Also, let me just throw out this disclaimer, I didn’t go the community college route (although I did take a few classes there during semester breaks), and my parents paid for my undergrad degree, which I supplanted with every possible scholarship I could earn. However, I did also pick a school that gave me a hefty scholarship based on my high school GPA and SAT scores. Then I took an average of 21 credits a semester, including during the summer and graduated with a double major in 3 years. And I’m really not that smart. Honestly, I’m a pretty lazy student. I could just see the different it made financially for them to help me for 3 years instead of 4, and also that I would then be a year ahead out in the working world.
Another common struggle is with assessing how much to borrow in the first place. The key is to keep this number as small as possible. I had one roommate at one point who had student loans for everything each year – tuition, books, rent, etc. – and looked at anything left over as her spending money for the semester. The amount of money she owes now after completing her Bachelor’s degree and a half a Master’s degree (before dropping out) actually makes me feel nauseous for her. Another old roommate took out exactly the amount she needed to cover her tuition and fees beyond any scholarships she had and she worked a part time job that she made meet all her other needs, including her rent. Friend #1 was a lot more fun to hang out with since she was always up for dinner out or a trip to the movies, whereas Friend #2 was mostly working or studying and when she wasn’t we would usually just meet up and watch TV at one of our places. Fast forward to today and Friend #1 is stuck in a depressing dead end job to just make ends meet and I barely ever hear from her and Friend #2 went off and did her own thing and started a business. I get regular updates from her and she seems like one of the few people I know who is genuinely forging her own path. Successfully.
And none of these still answers how the huge hike in tuition has occurred; it’s merely reactions to it. Survival techniques, if you will. This interesting article has three different economists debating how tuition got so inflated – popular culprits are high administrator and academics salaries, an increase in financial aid (say what??) and the influx of IT creating the need to hire IT administrators. Whatever the exact causes, it doesn’t look like it’s likely to get better anytime soon.
Enter to win a copy of Suze Orman’s The Money Book for the Young, Fabulous & Broke to learn more money saving and/or debt repayment tips. Contest ends December 31, 2013.
So, brokeGIRLrich readers, are you one of the lucky ones that got through college with a debt load of zero? Do you have any tips for the other readers on how to navigate student loan debt.