Borrow Wisely

The proudest day of Seth’s life was the day he graduated from college with a degree in business. He wasn’t the first in his family to have a college degree, but he had been waiting for this day for what had seemed like forever. Six months after graduation, Seth got a job as an assistant manager at a retail store, but he started to freak out when he got his mail one day. Among his magazine subscriptions, mail-order movie rentals, and small stack of bills was a new bill to begin paying back his student loans.

“How am I going to afford this?” Seth thought to himself. The reality was that he could not. To pay back his many debts, Seth had to move back home with his parents and swallow his pride. All Seth could think about when he looked at his student loan bill was, “Where did I go wrong?”

* * * * *

According to a 2010 report in Education Week magazine, many young recent college graduates have the same struggles as Seth. In addition to the diplomas they receive for their achievements, as many as 66 percent of college grads also walk away with at least $35,000 of debt to repay. In 2008, it was clear that such heavy debt burdens were having a negative effect: according to the U.S. Department of Education, up to 7.2 percent of college graduates that year defaulted on their student loans, meaning that they missed making at least one payment and/or went into “delinquent” status. As the consequences that result can echo across one’s ability to get credit for years, it’s important that students know what they’re getting into when they take out loans to cover education costs.

While student loans are considered a “good debt” because the interest paid on them are tax-deductible (meaning that individuals and/or their families can subtract their payment amounts from annual taxes), they’re not the sort of things you should just jump into.

Here are a few ways to make sure you graduate with an amount of debt you can handle:

• Compare college tuitions. While going to that Ivy League school may be your dream, it might be a nightmare to pay back those student loans after you graduate. Consider attending a college that offers the same major you are interested in, but with cheaper tuition.

• Be creative with costs. Even consider “breaking up” your degree. Though it takes quite a lot of patience and dedication, an effective way to bypass some costs of the big-name schools is to attend a community college for the first couple of years and transfer your credits to the college of your dreams. You will still get the diploma with the school of your dream’s name on it, but at a reduced cost. Recent college graduate Kyle Geoffreys did exactly this. Though he earned his degree from George Fox University, a private college in Oregon with hefty tuition costs, he spent his first two years at a nearby community college. “Why spend all the money to get the same end result?” Kyle asked. “Yeah, I went to a community college at first and got my generals [required courses] out of the way for way less than half the price of going to Fox. Then, I went to Fox to do the classes required for my major. While some people think it might be embarrassing or whatever to go to a community college, there is nothing embarrassing about saving a lot of money.”

• Know all of your financing options. Many students believe the choices of financial aid available are loans and scholarships. In addition to scholarships, however, a variety of federal and nonfederal student loans are available, often with friendlier payback guidelines and rates. In a College Board report, though, Sandy Baum and Patricia Steele made a key distinction: “Nonfederal borrowing is riskier than federal borrowing because it does not come with the same repayment protections and because nonfederal loans generally carry higher interest rates.”

• Reduce your financing costs. While the high cost of tuition will not change or go on sale, there are ways to help reduce your total debt. Geoffreys states he had a work-study job and purchased used books. He also said one of his good friends was a dorm R.A. (resident assistant or advisor), which covered the cost of the friend’s room and board. Geoffreys adds, “High schoolers should take AP (Advanced Placement) classes if they can. Or, they could try to CLEP-out of general courses by taking a CLEP Exam in a subject they are good in. This will get them instant college credits without the crazy tuition costs. I wish I had done this because I could do without some of these [debt] payments. It’s hard to find a job right now, and a lot of the jobs out there don’t seem to pay much.”

While taking out a student loan to pay for college is not a bad thing, do your homework about the financial options available to you and stick to a budget. The last thing you want to become, remember, is a future financial-crisis statistic.