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There‘s a brand new year upon us and with it comes the need to make some New Year’s resolutions. By this we don’t mean the standard lose weight, give up smoking or get a new job. What we mean is that if you’re a college student or will be entering college next year there are some resolutions you need to make for 2015 that are specific to your situation. If you choose to make these resolutions you can graduate from college either debt-free or owing very little in student loans. This is important because student loan debts can be a drag on your life for the next 10 years if not longer. Recent college graduates owe an average of anywhere from $16,500 to $30,000 depending on which source you want to believe.
Even if you were to graduate owing just the $16,500 that’s a lot of debt to have to pay back when you’re just starting work. For that matter, you may not even be able to get a job as the Economic Policy Institute recently reported that about 8.5% of college graduates between the ages of 21 and 24 were unemployed. Or you could end up part of the roughly 44% of recent graduates that had a BA degree or higher but were in a job that technically did not demand a bachelor’s degree and were, thus, “underemployed.”
Resolution #1: I resolve to check out all possible alternatives
Go back and read the previous paragraph. Suppose you were unable to get a job or became underemployed. While this might be bad news it would be even worse news if you owed $16,000 or more in student loans.
Before you sign up for any student loans check out the options. Assuming that you didn’t get a big fat scholarship from your school you should go to a website such as The College Board where you could search for information on thousands of different college scholarships, grants and internships. There is also CollegeNET, which is a searchable database of more than 600,000 awards. Does your mom or dad belong to a fraternal or social organization such as the Elks, Moose or Rotary International? These organizations often have scholarships available to the children of their members. The company that your mother or father works for may have scholarships available to the children of their employees. All these alternatives are certainly ones you need to check out before you start borrowing money.
Resolution #2: I resolve to get a part time job
Almost every college student will qualify for some sort of financial assistance. For example, if you are unable to get a full ride scholarship you might be offered a part scholarship or a grant of some kind. Beyond this, you need to think seriously about getting a job to supplement whatever financial assistance you’ve been given. There’s hardly a college town that doesn’t have part-time jobs available from waitressing to sales clerking in mall stores. These jobs generally don’t pay a lot per hour but if you were to work 20 hours a week at eight dollars an hour you’d be earning better than $600 a month pretax. This could go a long way towards paying your tuition and maybe even put a dent in the cost of your room and board.
Resolution #3: I resolve to live at home – for at least two years
While most high school graduates can’t wait to go away to college it’s better to stay at home at least for your first two years. When you live at home you basically eliminate all room and board charges, which can cost from $7500 to $9000 per year depending on whether you attend a public or private university. Many of today’s smart students are living at home and attending a two-year college before going away to school. Your first two years at college will consist mostly of taking “basic” courses that are generally the same whether you attend a two- or four-year school. If you were to do this you would save around $15,000, which might be $15,000 less in student debt. If you’re lucky enough to live in a town with a good four-year college or university then living at home for those four years could save you as much as $30,000.
Resolution #4: I resolve to understand student loans
One of the biggest downsides of student loans is that for most people they are just too darn easy to get. All you generally need to do is walk into your school’s financial aid office, sign a paper called a note and presto! You have money available to pay for your next semester. If you will be required to take out a student loan or loans you need to know the different types. All federal student loans are now called direct loans because they come directly from the Department of Education (ED). These loans come in two types. They are either subsidized or unsubsidized. Subsidized loans are where the federal government covers the interest on them while you’re in school at least half time or are in a period of deferment. These loans are based on financial need, which is determined by your college or university. In comparison, unsubsidized student loans are not needs based but require that you do pay the interest on your loan or loans during all periods that you be in school.
Resolution #5: I resolve to not ask my parents to get Parent PLUS Loans
These loans are unsubsidized and available to the parents of dependent students as well as graduate/professional students. They are to help pay for educational expenses up to what it costs to attend the school minus any other financial assistance. Since they are unsubsidized, your parents would be required to pay the interest on them during all periods that you are in school. There are several reasons why you should not ask your parents to take out one of these loans. First, the interest rate is currently 7.21% for loans disbursed after July 1, 2014. In comparison your parents might be able to get a home equity line of credit with an interest rate as low as 2.99%. But second and more importantly do you really want to stick your parents with a pile of debt that could take them 10 or 20 years to pay off? Assuming that your parents are in their early 40s, a Parent PLUS loan could keep them tied up in debt until they were ready to retire.
Resolution #6: I resolve to graduate in four years
Did you know that according to a recent study only 19% of students graduate in four years? This might explain why so many of them graduated owing $16,000 or more. If you were to take an extra year to graduate this would increase your cost or debts by at least 20%. You could avoid this by buckling down, taking a full 15 credit hours or more a semester and graduating in four years. For that matter, if you’re really smart and a hard worker you might be able to graduate in just three years, which would reduce your costs dramatically. And if you don’t think that going to college for a fifth year will have serious consequences, watch this short video on the true cost of not graduating in four years…
