Borrowing money to finance a college education can be a very good investment. It can have a rate of return higher than just about anything else in which you could invest your money. As an example of this, there was a recent study that college graduates earn about $1 million more over the course of their lifetimes than people who have only a high school education. This same study showed that on the average, college grads earn 84% more than people who have only a high school degree. As you can see from this, borrowing money to finance a college degree could be one of the best investments you’ll ever make.
A time for experimenting and learning
One of the best things about going to college is that it gives young people the opportunity to learn about things they would have never been exposed to otherwise. There are probably thousands of young people who go into college believing that they will major in one subject only to graduate with a degree in something entirely different. For instance, one of our friend’s son went to our state university four years ago believing that he was on his way to becoming a doctor only to graduate with degrees in economics and finance. We’re sure this is not an isolated story as one of the great things about going to college is that it exposes students to different courses, which gives them the opportunity to discover new and exciting careers that would have never occurred to them otherwise.
Picking the right major
The danger to this is that it makes it easy for young people to fall in love with a major that will never lead to a decent job. A second study revealed that 53% of recent college graduates are still either jobless or underemployed – basically because they chose the wrong major. If you or your child has or will be borrowing money to fund their education, it pays to pick a major that will lead to a good job. Most of these are in the area now known as STEM or science, technology, engineering and math. For example, as of this year the major that’s most worth borrowing money for is biomedical engineering followed by software engineering, environmental engineering, civil engineering and petroleum engineering.
Conversely, the majors that rank lowest in job opportunities are the “soft” sciences such as psychology, sociology and philosophy.
Some tips for handling student loan debts
If you’re wallowing in student loan debt there are alternative ways to handle it.
- Apply for a forbearance – A second way to handle that student loan debt is to get forbearance. This would give you a sort of timeout for a year. However, interest will continue to accrue and will be capitalized. You might be eligible for forbearance if you can show a severe financial hardship. There is also what’s called mandatory forbearances you could apply for if you are doing a medical or dental internship, in a national service position or doing a teaching service.
- Check out an IBR – A third way to deal with student loan debts would be to apply for an Income-based Replacement or IBR. If you qualify for one of these, your monthly payments would be capped at 15% of your discretionary income. There is also a program called Income-Contingent Repayment, where the payments are capped based on your family size, income and the amount of debt you owe.
- Pay As You Earn – you are a recent college graduate there is a program called Pay As You Earn (PAYE) where your payments would be 10% of your discretionary income.
Could you pay off $100,000 in student loans in one year? We recently read of one young man who did just this. He was forced to move back in with his parents and make serious sacrifices in his life style but was able to emerge debt-free in just 12 months. Could you do the same? Maybe not but you could find ways to save enough money to get those debts paid off in just a couple of years. You could do like this young man did and move back in with your parents for some amount of time. If you and your partner or spouse has two cars, you could sell one. You could get a second job. In fact, this might be the best answer to paying off that student loan debt. There are many part-time jobs available, especially in the hospitality, food service and telemarketing industries. These jobs may not pay a great deal but if you were to put all the money you earn into paying off your student loan debts, you might be surprised at how quickly you become debt free.
Why bankruptcy can’t help with student loans
The one thing you can’t do to get rid of those student loan debts is file for bankruptcy. Chapter 7 bankruptcies will discharge many types of unsecured debts but student loan debts are not one of them. Nor can a chapter 7 bankruptcy get rid of alimony, child support or past-due taxes. It can also do nothing about secured debts like a mortgage or auto loan.