Student loan debt is a huge issue in the U.S. today. In fact, it’s grown so big (more than 7% of our GDP!) it’s even affecting important life aspects like business ventures, retirement, and even marriage!
Let’s face it. College is expensive. To complete your degree, you need to deal with the rising tuition costs, board, transportation, and books.
But you keep going because you know earning a degree is essential. It will not only give you an opportunity to get a high-paying job, it’ll also help you develop your natural talents. It’ll open the door to opportunities for networking.
But before you start earning a living after school, you need to find ways to fund your personal expenses and cost of living.
So you take out a student loan. While this solves the immediate need for cash, it comes with considerations you need to weigh carefully. For instance, how much can you afford to borrow? Will you be able to pay back your debt once you graduate from college?
If these are questions you’re asking, you’ve come to the right place. In this article, we explore the considerations you need to make before taking out a student loan. We go over the common problems students face when dealing with loans. Also, we tackle ways you can rise over the challenges and start your career after college with less debt and more freedom.
Let’s dive in!
The Problem of Student Loan Debt
The problem of student loan debt is reaching a crisis. In fact, student loans are so big they are next only to home loans in the U.S. Both federal and private student loans are at approximately $1.4 trillion, setting a record for the highest these loans have ever been.
Student loans help students cover the rising costs of higher education. But is it best option when considering your long-term financial health? Families encourage young people to borrow because they have their eyes on the benefits of earning a degree. For example, as a college graduate, you’ll earn $1.3 million more than a non-college graduate over your lifetime.
The problem arises when you aren’t able to pay back your loans. You might think it’ll be easy to pay off your loans once you graduate and start earning. But this isn’t the case. In fact, the problem of student loan repayment and bad debt hound millions of Americans of different ages. For example, people in their 30s struggle with unpaid student loans averaging $40,476.
It’s difficult to deal with, especially when it’s coupled with inflation and the expenses of day-to-day life. Besides these, there are other factors that make paying student loan debt back even more difficult. Here are three of them.
1. Failure to Graduate
Entering college doesn’t ensure you’ll earn your degree. In fact, only 41% of students graduate in four years. That leaves 59% who drop out or get stuck on their road to earning a degree.
If you’ve already accumulated large student loans, failure to graduate puts you in a bad position. This is because it’ll be difficult for you to enter companies that require degrees for high-paying jobs. As a low-level earner, paying off tens of thousands in student loan debt will be next to impossible.
2. Not Graduating on Time
As mentioned, most students do not graduate in four years. While there are dropouts who never graduate at all, there are also students who take five or six years to complete their course work.
While it’s always a reason to celebrate when you graduate, not completing your courses in four years can be problematic for you. This is because the longer you stay in college, the higher your expenses will rise. Before you know it, you’ll find yourself needing to re-loan just to keep yourself in school.
3. The Rise of College Costs
College is not getting cheaper with time. In fact, prices have risen incredibly fast in recent years. For instance, in 20 years, the cost for private national universities has risen by 154%. In-state public universities are also more expensive – by 221%!
College is not getting cheaper!
Because paying off student loan debt is so difficult, it’s crucial to consider important factors before applying for a loan.
Four Factors to Consider Before Getting a Student Loan
Depending on how you manage it, a student loan can be either your downfall or the reason you graduate. Here is a list of factors that’ll help you make the right decisions as you map your way towards graduation.
The Price: Know How Much You Can Actually Afford
It’s not enough to take on a student loan and hope you’ll eventually be able to pay it off once you start working. You need to make a detailed plan on how you’re going to pay the loan back.
Start by creating a payment plan. First, find out exactly how much you’ll owe in student debt loans once you graduate. Be sure to factor in interest rates and tax advantages. Divide the amount per month and then determine how much salary you’ll expect to earn. When you’ve done this, you’ll have an idea of exactly how much you can afford in student loans.
Interest Rates: Calculate the Costs
The problem with many students is they don’t factor in interest rates when calculating their student loan debt. When you don’t pay attention to this detail, you’ll find yourself in deep water in the future as you face higher bills than you expected.
To counter this problem, make sure you know how much you’ll be paying in interest throughout the years. This varies depending on the kind of loan you choose. For instance, federal loans offer you smaller interest rates than private loans.
The Rules of Student Loans: Understand the Basics
Student loans are different from other types of loans in that they’re almost impossible to get rid of. For example, a student loan is different from regular loans because it’s next to impossible to get rid of it through declaring bankruptcy.
Your Life Goals: Reflect on What’s Important to You
Maybe you plan on attending a college you’ve always dreamed of going to. However, tuition is pricey and you’ll need a large loan to be able to take classes there. Do you go ahead and get the loan simply because you’ve always wanted to go to that particular college?
The answer is yes, if you can pay the loan off in the right timeframe. For instance, if you’re able to pay the loan off within a few years of graduation, go ahead and apply for it.
However, being stuck with a loan for a long time can hurt other aspects of your life. It’s a good idea to pay off student loans as quickly as you can. This is because having large debt can hurt your chances of starting up your own business. It can make you postpone marriage. It can even delay your retirement savings and investments.
So before you go into debt, explore every angle for reducing your student loans.
How to Graduate College with Less Student Loan Debt
If you’re like 70% of students, you need a student loan to get you to graduation. However, a loan isn’t always a bad thing. When you follow these guidelines, it’ll be easier for you to pay off your loans after you graduate.
Stick to a Budget
Once you get your loan, you’ll be tempted to think it’ll last you until graduation. However, college costs are higher than you expect at first. It’s not only tuition. It’s also room and board, your personal expenses, books, transportation, and the cost of materials for projects.To know what to expect, make a reasonable budget and stick to it. List all of your expenses and add the total. This will help you determine how much you can spend per month in college.
Consider Community College for Your First Two Years
You don’t need to declare your major or choose a college until after your sophomore year. Because of this, consider community college as a way to cover your core subjects in an affordable way. You’ll be surprised to find you can save up to 90% on costs by attending community college before transferring your credits to a college of your choice.
Know the Benefits of Credit-by-Exam
Another option you have that’ll significantly lower your debt when you graduate is credit-by-exam. Credit-by-exam is an innovative way to pass exams for college credits.
For instance, there’s CLEP. When you pass a CLEP exam, you earn credits without having to enroll in a course and sit through it for a whole semester. You don’t have to worry about exams, projects, or attending lectures.
But taking a CLEP exam isn’t only about saving time. You can also save money when you decide on this option. Take a moment to consider it. How much does an average college course cost? If you go to a private college, you can end up spending around $900 for a whole course.
On the other hand, when you take a CLEP exam, you only need to spend $85 for three credits. That’s more than $800 in savings. More importantly, you reduce your need for student loans!
Interested in taking credit-by-exam? Achieve can help you determine your chances of passing and give you guidance that’ll increase your chances of earning those college credits quickly and affordably.
How to Graduate College with Less Student Loan Debt
The benefits of graduating are undeniable. However, getting from where you are now to graduation day is a challenging, unpredictable journey. Because of the rising expenses of going to college, you can find yourself neck-deep in debt by the time you finish.The secret is to be innovative in your approach to college. Find ways that’ll significantly lower your expenses. For instance, combining community college with credit-by-exam are two proven and tested ways to cut a huge chunk out of your student loan debt.
If you’re not sure about where to start in making your roadmap towards graduation, talk to one of our Advisors at Achieve. We offer credit-by-exam guidance, and a library of helpful hints you can use to ensure you earn credits the innovative way.
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