Avoid $13,160 in Interest Payments & Get a College Degree

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Too many people are playing financial catch-up.

They made a dumb mistake or several dumb mistakes that unintentionally put them years behind on their current financial goals.

In this upcoming series will look at the things you (as a young adult) can decide now to avoid YEARS of financial regret.

Student Loans

To borrow or now to borrow. That is the question.

Here’s the topics we’ll cover:

  1. Decide you will pay for and save for as much for college cost as possible.
  2. Decide to marry someone who has a clue about money.
  3. Decide to work during the summer if not during the school year.
  4. Decide to buy a car with cash.
  5. Decide to rent until you have at least 20% down for your first home.

Pay for and save for as much of college cost as possible.

Student Loans are NOT free money.

Part of the American academic obsession is that we think that student loans is the only way to go to college.

Finaid.org reports:

Few students can afford to pay for college without some form of education financing. Two-thirds (65.7%) of 4-year undergraduate students graduate with some debt, and the average student loan debt among graduating seniors is $19,237 (excluding PLUS Loans but including Stafford, Perkins, state, college and private loans), according to the 2003-2004

Notice that this information is outdated by five years.

But assume you are Mr. Average so you will graduate with $20,000 in loans.  Now imagine if you marry a Mrs. Average who also has $20,000 in loans.  At your graduation you will receive a degree, and if married, $40,000 in debt.  So how long will it take Mr. and Mrs. Average to pay it off?

Assuming your loan rate is 5.6% (current Stafford loan rate) and you are going to pay that loan back in 5 years, you will need to pay $772 per month.

[pullquote]Over that five year period you would have paid $6,320 in interest. [/pullquote]

Typically, however, most student loans are repaid over a ten year period.  In that case Mr. and Mrs. Average will pay $443 per month.  With $13,160 going towards interest payments. Sounds like a good plan, eh?

How can you avoid student loans?

  1. Take out as little student loans as possible. Typically, when an individual gets a student loan, they tax the max of whatever is offered to them.  The end result is they ended up financing trips to the local restaurant and entertainment events.  You friends around you are going to be doing a lot of things to financially paralyze their futures.  Ignore them and keep on track.
  2. Work before you get to college and while you are in college. Some people will suggest that you focus exclusively on your studies.  What a joke.  In your life you will never be able to focus exclusively on anything.  You will be a spouse, a parent, an employee, a volunteer for a good part of your life so you should learn how to balance school and work.
  3. Write a lot of scholarship letters. A site like College Scholarship will help you find places to apply for scholarships.  There are even some sample letters.
  4. Talk with your parents. How much are mom and dad able to pay?  What are you expected to pay?  Is there any way to avoid getting loans?
  5. Study hard and get involved in your community. Schools are often willing to provide scholarship based on grades and even your community involvement.
  6. Consider in-state tuition or a local community college.  At the very least, you could try and get your prerequisites close to home before heading off to finish your degree.
  7. Visit a loan repayment calculator like this to remind yourself how much your loan will impact your future.
  8. Always buy books used. If a former student is selling books, get it from them.  Otherwise, get online.  Never buy from the bookstore as it will almost always be your most expensive option.
  9. Explore all your meal plan options.  If you are able to make your own food that is a great way to save a ton of money at school.
  10. If you do end up with some student loans commit to paying them off as fast as possible. If you get married this means living off one income till you have paid off the loans and not buying a house until they are paid off.

Here’s another article that might interest you – how to graduate college debt free.

Photo by CarbonNYC

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