How Debt Happens: Student Loan Rant
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. We don’t look into potentially consolidating student loans or refinancing in order to pay them off with a better rate. 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.
This post is linked up as *Part of Financially Savvy Saturdays on Femme Frugality and Kylie Ofiu*.
I was very lucky- my parents paid 100% of my college costs.
Amen, sistah. My parents paid for all of my undergrad and half of my first Master’s degree. The rest of the first one and all of the second one were on me. Not gonna lie, I studied with a whole new fervor once it switched to my money.
I have 5 sisters, so I was completely on my own to pay for college. My husband has 4 siblings, so he was in the same situation. We are currently clawing our way out of student loan debt by following a budget and common sense frugality habits (packing lunches, cooking at home, not buying new clothes when possible, moving closer to where we work, etc.) Our next step is to take the plunge and invest in a bike so my husband can commute to work on bicycle to save on gas…no small feat, as we live in MN and winters get tough!
Love the article! I wish I had been more mindful of how to stay out of student loan debt at the age of 18. Instead, I just did what everyone else was doing.
Emily recently posted…winter blues
Oh my goodness, biking in Minnesota? That’s commitment. And probably a hilarious/horrifying blog post too. 🙂 Good luck!
Sigh, student debt has become a big challenge today. It’s been difficult for recent grads to find good jobs with the economy and unemployment. I went to a private school and I did it with a combination of grants, scholarships, loans, working part time, and a little help from my parents. I do have some debt, but luckily it wasn’t terrible and it’s been very affordable for me to pay off. I consider myself lucky. When dealing with debt I think it’s important to understand how interest works, and compare the interest rates of your various loans when deciding how to budget. And then you have to think about things like 401k if you are lucky enough to have one, and if it makes more sense to pay off the debt or invest the money. It gets complicated! Kind of makes my head hurt.
Stevie recently posted…Ask Away Friday with Heather of The Frill of Life
No kidding, it makes my head hurt too! I’m glad you’ve got manageable debt though – it seems like all your work in advance/during school paid off.
I refuse to get into debt for school. I’m still going to school and I’ll still make something of myself and get ahead just without the debt.
Stu @ Poor Student recently posted…Cheap and Semi-Healthy Snacks to Help You Through Your Next Cramming Session
Good for you! I think that’s most people’s goal.
Hi Melissa,
Very well done article! I got a bachelor’s degree eons ago and was fortunate to have scholarships that paid for most of my expenses. My parents helped and I took out a very small loan which I paid off pretty quickly.
I’m worried about sending my two year old to college. I hope we can start saving for him soon so he doesn’t have to work his tail off and take out loans. Visiting from Family Fridays.
Jennifer McCullough recently posted…Top 10 Christmas Gifts Toddler Moms (and Dads) Would Kill For
I’d be stressed about trying to put a kid through school too, but at least you’re thinking about it early. 529 plans are supposed to be a great help and have several great benefits, like not having to pay taxes on the money the account makes. Good luck with everything!
Oh student loans…the thought of them makes me shudder. I went the community college route to begin with considering it was cheaper than going through a university to get my prerequisites finished. I was able to pay for community college out of pocket with a settlement I had gotten from an accident. Also, I worked all the way through my years at community college. I didn’t start getting loans until I transferred to a university and even then, it wasn’t half as much as it could have been. I was careful with how much I borrowed and only borrowed (essentially) what I needed. Plus, I didn’t live on campus (stayed home with my mom), so I didn’t have to pay for rooming or a meal plan. During graduate school, I’ve been pretty lucky. After my first semester I snagged a Graduate Assistantship, which lowered the amount I had to take out for loans since it waived tuition and I’ve only had to pay tuition for a couple of semester, which didn’t add up to much.
At the end of the day, I did my research and budgeted like crazy to keep my loans at least some-what under control. I know I don’t have half as much to pay back as some of my peers.
Great post, really insightful and I hope people take something away from it!
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Wow, you did GREAT with college! Way to go. I love hearing about people who successfully navigate the college financial maze well. I think it inspires others – especially high schoolers just getting ready to head out into it all.
Omg it is incredibly dear. I think it is in a matter of selection also. There are some scholarships, but there isn’t any scholarship here. You still can work without going to university over there, but here high school graduate is nothing. Great information.
Adelien recently posted…My Reading List for 2014
I took on more debt that I could afford on my mortgage and now I’m realizing how long it will take to pay it off.
That sucks. At least it’s made you more financially aware for the future.
I was fortunate that my parents paid for my undergraduate degree. I am on my own for my MA and have taken out loans, but only for as much as I need for the classes and books. The school I’m going through has a partnership with UMUC-Europe that makes the classes about half as much as the out of state tuition would be if I were taking them on location, so that’s nice. Unfortunately I had to quit the job I had for another move, but while I was working I threw half of every paycheck toward my loans. Of what was left I put half in savings and kept out half that I was allowed to spend. I still have a lot more debt than I would like to, but I have a lot less than I would have if I hadn’t started paying them before I had to.
Amanda P recently posted…Christmas Presents From My Husband (Part of the Christmas Spectacular Blog Hop)
Way to be responsible about it though, so it looks like you’re doing pretty well overall. Good luck getting them all paid off!
I’ve never understood how people lived on loans. I grew up so deathly afraid of credit; I think that’s what led me to complete school the way I did. I never even considered loans as an option. I finished a lot later than my peers, but I’m also not tens of thousands of dollars in debt. I think you really do need to pursue college today, like you said. You just have to do it smartly. Pick a major with good job prospects and balance your expected salary against what you’re borrowing, if you’re borrowing at all. Thanks for the mention!
femmefrugality recently posted…Affluenza: How You Can Literally Get Away With Murder If You Have Money
I was so fortunate as to have parents who were able to pay my way through my BS. Part of that was due to the fact that I received in-state tuition for a scholarship at an out of state university with tuition that was less than the ones in our state. I did work part of the time I was at school and each summer for my parents.
We have 6 kids between my husband and I and quite honestly we won’t be able to help them much at all. They’ve been told this from the very beginning-most have listened by one really hasn’t.
One very overlooked money saver is to take things like CLEP exams to test out of credits and to go non-traditional routes such as Thomas Edison University where you can earn your Bachelors completely off campus through testing out of courses and/or transferring community college courses.
One thing I learned is that most of the time, it’s the diploma that matters, not so much where it came from or what GPA you had.
Anyway, thank you again for another great post. I loved it so much I’m featuring it on Family Fridays this week. http://wp.me/p3H005-zP
Missy Homemaker recently posted…Wellness Wednesday: The END of New Year’s Resolutions and a Big Surprise!
I totally agree about the CLEP exams – they’re right up there with AP exams and taking a few community college courses while living at home your junior or senior year of high school… honestly, I found a few classes were easier in college than their AP counterparts were when I took them in high school.
And thanks for the feature! I’m glad you liked it!
I’m planning to go to school debt free. I am saving now and my parents are willing to help me. The biggest decision that will help me is (imo) choosing to live at home and go to a community college. I’m really committed but I guess time will tell if I have the discipline to avoid loans!
Eva recently posted…Featured on Good Financial Cents and CouponPal.com
Eva, I’ve got a gut instinct that you’ll be totally successful at going to college debt free! You’ve already put so much more thought into it that most high schoolers, and I feel like with your blog and your jewelry business and even your talk at FinCon, you’ve built up a lot of great experiences to use to rack up several scholarships when the time comes.