Student loan debt is an albatross around the necks of many college grads these days. Total student loan debt in the U.S. has ballooned to more than $1.2 trillion and the average debtor owes just shy of $29,000, according to The Institute for College Access & Success (TICAS).
As one of the estimated 40 million Americans that owes student loans, I know how much of a burden this kind of debt can be, both financially and mentally. Looking back on my experience with borrowing and paying off student loans, there are a few things that would have been helpful to know ahead of time.
If you’re the parent of a child who’s headed off to college soon or you’re going back to school to get a degree, here’s some 20/20 hindsight on what it’s like to deal with student loans from someone who’s already done it.
1. Student loans aren’t the only way to finance a degree
I went to college twice, once for a bachelor’s degree and the second time for a master’s. Both times I took out student loans because I assumed that was what you did if you wanted to get an education but you didn’t have cash to pay for it out of pocket.
By not looking into other options–like grants, scholarships and work-study–I ended up with a boatload of loans that I might have been able to avoid if I’d done my research.
2. Overage checks aren’t free money
One of the worst mistakes I made with student loans when I was in school was treating overage checks like a windfall. Every semester, I was getting a check for a few thousand dollars back from the bursar’s office. What I was doing essentially was borrowing more money than I needed to pay for school.
Instead of doing the smart thing and just applying that money to my student loan debt, I spent it. Sometimes I used it to pay off my credit card debt; other times I put it towards living expenses. I didn’t realize that I was just digging myself deeper into the debt hole.
3. Use your grace period wisely
With my loans, I had a six-month grace period before the payments kicked in. What I should have done during those six months was crunch the numbers on my payments and figure out how much I was going to shell out in interest. I could have gotten a head start by paying a few bucks a month towards what I owed.
Instead, I just waited around for my first statement to roll in, with no idea of how much I was going to have to pay. Fortunately, my payments were low but I could have been in for a nasty surprise if I’d borrowed even more heavily than I did.
4. Taking a deferment or forbearance may hurt more than it can help
Deferments and forbearance periods are designed to give you some relief from your loans if you run into a financial hardship and you need a temporary pause in your payments. I took full advantage of deferment and forbearance periods in my 20s when I wasn’t making a lot of money.
The problem is, in doing so, I actually added to my debt because the interest kept piling on even though I wasn’t obligated to make any payments.
The lesson here? Deferring your loans or requesting a forbearance is only something you should do when it’s absolutely necessary. Otherwise, you could be increasing your debt load and dragging out your repayment period even longer.
5. Skipping out on student loan payments can ding your credit
I was pretty much clueless about credit when I went to college the first time. This was in the pre-CARD Act era when you couldn’t walk anywhere on-campus without someone offering you a credit card and a free t-shirt. I had a vague idea that getting those credit cards in my late teens and early 20s had something to do with my credit score but I didn’t make that same assumption about my student loans.
Even after I graduated and had to start paying those loans back, I still didn’t realize that paying late would have any impact on my credit. It wasn’t until I checked my credit report for the first time that I saw just how much damage skipping a payment on my loans could do.
6. Income-based repayment does have its downsides
Income-based repayment programs are designed to make your life a little easier by tailoring your payments to how much money you’re making. The idea is that if your payments are more manageable, you’re less likely to default on your loans. While it sounds pretty appealing, income-based repayment may mean stretching out your repayment term.
Instead of 10 years, you may be paying on your loans for 15 or 20 years. While the monthly payment isn’t a killer, you’re going to end up paying a lot more in interest over the long run.
7. Financing your education doesn’t guarantee a career path
I have two degrees, one in political science, the other in criminal justice. Sad to say, I never worked in either of those fields and even though I’ve found success as a financial writer, I’ve still got those lingering loans to pay off.
While I’m not trying to diminish the value of a college degree in any way, I would caution students to think carefully about what their long-term goals are before sinking themselves in student loan debt. If you’re taking on all these loans with the expectation that you’re going to get a certain return on your investment later on professionally, you may be setting yourself up for disappointment.
What do you wish you knew about student loans before heading to college?
What I find mind-boggling is how anybody this clueless can purport to represent oneself as a “financial expert.” The mind reels…