“The most dangerous debt:” Student Loans

One of the things I wanted to do with this blog, when I started it, was write posts that would help out college students. I haven’t really done that. But today, I thought maybe I could give you some thoughts on student debt.

$1.5 trillion. That’s the current amount of total student debt owed by Americans. This is one the reasons why you hear Bernie Sanders and others advocating for the total forgiveness of all student loans – because when we’re drowning in debt, how can we buy houses, or other things that would boost the economy? Some people are making payments of over $1,000 a month on their student loans.

Right now, many high school students are looking at acceptance letters, and community college students are looking at transfer schools, and undergrads are considering graduate schools. One thing you HAVE to worry about, if you are one of these students is student loan debt.

Now. If you are – and there’s no other way to say this – stupid enough to attend a for-profit school like University of Phoenix, you’re going to hear something like this:  “You WILL make enough with this degree to pay back this loan in just a few years! Interest rates are so low – it’s like free money! And it can be forgiven in just a little while – just 25 short years!” They will sell you on financial aid. What they don’t tell you is this:  to afford a for-profit school, you will have to take out two different kinds of loans:  federal and private.

Now. If you are planning to attend a non-profit college (as you should be), then depending on the tuition rates, you may have to do this as well. And I hate that. Know why?

1.) Student loans cannot be discharged in bankruptcy. Unlike any other kind of debt, you are going to be stuck with these forever.

2.) Private student loans are often at a higher interest rate – and that interest rate is often variable. What that means is this:  after a period of time, usually a few years, the interest rates on these loans will go up. And up. And up. But the interest rate you get on your federal loan is locked in.

3.) If you have to take out that much debt, you are probably attending the wrong school. We all want to go to the Ivy League school. And that’s pricey as hell. The general rule of thumb has always been:  never take out more in student loans than you can expect to make in your first year out of school. In all honesty, I don’t think that’s a very good rule to follow anymore. You’re not guaranteed a job after your graduate! Yes, the economy is getting better, but there is so much competition for jobs out there. And yes, I know, you get that six-month grace period before you have to start making student loans, etc., etc. — but that goes by WAY faster than you think it will. And if you don’t have a job by that time, you’ll have to put your loans in deferral. When you do this, interest accumulates. It is NOT a get out of jail free card! You will have to pay that interest.

4.) Tuition rates are rising almost every year at most schools. What you pay this year is NOT what you will pay next year. I did AmeriCorps, and earned two years’ of education stipends. When I started at WSU as a junior, I ran the numbers and knew that even with my double major, I would have enough money to graduate with my Masters’ degree and only ever need that education stipend. Fast forward four years. I had to take out student loans just to finish my grad school. That’s because, on average, tuition at WSU rose 13% annually. This is not an uncommon rate!

5.) Do not take out more student loans than you absolutely need. Trust me. Please. If I had taken out ONLY what I needed, I would be almost out of debt by now. And I only took out the max on Stafford loans! I can only imagine if I had any private loans. Let me say it again:  take out only what you need. Do not take out more and say “I’ll get a car,” or “I can pay rent,” or whatever. Take out only what you need for your tuition and books and fees. No more. 

6.) Do not listen to anyone, at any school, who encourages you to take out more than you need. They are lying, and if they are at a for-profit school, they are lining their own pockets. In fact, when they give you the hard sell, you need to RUN. A true financial aid adviser will never do this to you.

7.) Do not – under any circumstances – cosign for a student loan with anyone. Remember, you cannot discharge student loan debt in bankruptcy! So let’s say you and your boyfriend are in luuuuv and plan to get married and you decide, because you luuuv him, that you’ll cosign his student loan. Then, two years later, you break up. Guess what? YOUR NAME IS STILL ON THAT LOAN, AND IF HE STOPS MAKING PAYMENTS, THEY CAN AND WILL COME AFTER YOU. Do not do it. Parents, this goes for you as well! If your child cannot get enough loans to attend their dream school, then they need to attend a cheaper school.

8.) Community colleges are excellent choices. Today, with the world turned upside down, more and more students are going to find themselves wondering if moving across the state or country is a wise idea. Trust me, we will return to online learning sometime this fall. So why not go ahead and attend your local community college? For one thing, the tuition is much cheaper:  for the 2018/19 school year, tuition at Wichita State University was $8,270, while tuition for Cowley College (my community college), was $3300. It’s easier to get scholarships and tuition assistance at community colleges in many cases, and there are other benefits as well, including the chance to explore majors, save money, and maybe do things you’d never ever do at a four-year university, like volunteer, or join the theatre group. By the time you get to attend that four-year university, you’ll have a solid GPA, a handle on your major, and you’ll be entering with the junior class – which means smaller class sizes, more one-on-one time with your professors, and two more years’ of personal growth. And, money saved!

Last year, I taught a First Year Experience course for my college. This is for freshmen, and it covers stuff like ‘where is the cafeteria located?’ and ‘how do I drop a class?’ and study habits. It also covers financial literacy, which I think a lot of our freshmen lack in spades. When we talked about student loans, they were pretty sure they were all going to take out student loans (some, not qualifying for either Pell Grants or scholarships, already had). Since I’d just made my payment that month, I showed them my statement.

I took out two subsidized federal loans to finish my graduate degree:  one for $8500 (2008), the other for $17,607 (2009). That was my first problem – I took out too much in loans. I didn’t need the full amount, and I should NOT have taken it. That gave me a grand total of $26, 107 in student loans.

I’ve been paying on these loans since 2010. I will pay off the $8500 loan next month – July. That means it took me 10 years to pay off $8500. The other loan, the one for $17,000? That is only 34% paid off.

I have paid $11,085 in interest on those loans since 2010. 

And these are subsidized federal loans, that do not have variable interest rates. My interest rate is 6.5%.

So I’m begging you, students:  if you must take out student loans, figure out only what you need! And take only that. No more. Don’t listen to your adviser or your financial aid person. They are there to sell you on loans. Listen to me and Suze Orman! Take out only what you need, and plan to pay it off as quickly as you can. The more you can pay on your loans, the faster you can pay them off, and the less interest you’ll pay. Make extra payments when you can. Pay extra every month, even if it’s only $20. The faster you can pay off your loans (and this goes for all loans), the less interest you’ll pay. 

All of this is why student loans are often called ‘the most dangerous debt’ you can take out. They cannot be discharged in bankruptcy. If you have private loans, those interest rates can be variable. And with Betsy de Vos at the helm, for-profit colleges are getting away with screwing over students more than ever. Please, please, if you’re going to college this year, really investigate how much you need to take out in student loans, or if you need to do so at all.

For an in-depth look at why for-profit colleges are the worst idea EVER, watch this 2010 Frontline special from PBS:  https://www.pbs.org/video/frontline-college-inc/

And to prove to you that this isn’t just me being silly, here’s the greatest financial genius of the 20th century, Suze Orman, to tell you all about student loans:  https://www.suzeorman.com/blog/tag/student-loans

And Suze Orman on student loans in May 2019:  https://www.today.com/video/what-to-know-about-student-loans-suze-orman-shares-money-advice-60491845792