College Debt: Avoid Borrowing Too Much For That Degree

College students are facing higher debts than ever. A 2009 Sallie Mae study shows the average undergrad owes $3,173 in credit card debt. On top of that, the average college student graduates with approximately $20,000 in student loans.

These days, private lenders are tightening up their lending standards, and this applies to student loans as well. Where many students might previously have supplemented their federal student loans with private borrowing, now they are finding loans hard to come by.

College is expensive, no doubt about it. Consider some of these ideas before getting yourself deep in debt on the way to college.
“Don’t spend all 4 years at a high-dollar college. One of the reasons college debt is growing is students’ insistence on going to big-name schools. And too often these schools substitute things like luxury dorm accommodations, on-campus spas and rock climbing gyms for higher quality education. 

A better idea for many students is to spend the first 2 years of college at a local community college or junior college. The advantages are many:

  1. It’s much cheaper
  2. None of the distractions of dorm life
  3. It’s easier to have a part-time job while attending junior college
  4. The general ed courses may be easier
  5. If one applies for all the grants and assistance programs available, Junior College may be possible without incurring any debt

If one attends junior college and gets good grades, then transfers to a more prestigious school as a junior, s/he will have all the advantages of graduation from a quality university at half the cost.

There’s also a practical, if unpleasant, consideration in all of this:  only 42 percent of students who enter 4-year colleges actually graduate. Starting at a community college can help you find out whether you’re one of the ones who is destined to finish your degree, without getting buried in a lifetime of debt.

Just be careful what classes you take at a community college; make sure everything will transfer to your eventual 4-year college, and avoid spending money on electives that won’t do you any good in the long run.

Do not borrow for non-educational expenses.
If you have to, borrow to pay for your tuition, textbooks, and room & board. And that should be it. Too many students use loans to pay for clothing, pizza, cell phone bills, entertainment, transportation, laundry, etc.Paul Richard of the IFCE has said, “If you can wear it, eat it, or drink it, it’s not an emergency.” And it’s not something you should borrow to pay for.It is true that a computer and internet access are necessities of college life, but colleges have computer labs where students may work on papers and do their research. There’s no need to borrow thousands of extra dollars to have the latest computer system in your dorm room.Any extra debt you incur during your college years will pile up and could eventually crush you. If you don’t have a steady source of income to pay off your credit cards bills each month, you shouldn’t be using credit cards at all. And student loans should only be used for school, not for living expenses.

If you can work while going to school, you should do so. Every dollar you earn while attending school is a dollar you don’t have to borrow. It may be tough to balance college with a part-time job, but college isn’t supposed to be easy. The point is to prepare you for the challenges of adult life, and managing your finances without incurring crushing debt is a lesson you should learn as early as possible.

Start saving for retirement now. The math is simply amazing when it comes to starting early on your retirement savings. Every year you wait makes it harder to have a comfortable retirement, and the earlier you start, the less you have to put into your retirement accounts each year.

In 2009, the trustees in charge of our Social Security funds reported that Social Security will run out by 2037. That means today’s college students simply can’t count on any source of retirement income they didn’t create themselves.

It wouldn’t be a bad idea for any college student to sit down with a professional financial planner and get some advice for starting retirement savings early. If your parents use a financial planner, see if you can meet with him/her and talk about starting some kind of retirement account as soon as possible.

Be realistic about your degree program
The world needs artists, certainly, but if your degree program is in a highly competitive and low-paying field like the arts, then it’s bad idea to borrow $40,000 to get the degree. If you”re an engineering or business major, then repaying those loans will be more realistic. Do some homework and be honest with yourself; if you are entering a field where the rewards are largely non-monetary, then think twice before borrowing tens of thousands of dollars to get there.

Finally, if you intend to go on to graduate school after college, stop borrowing. We’ve seen plenty of newly-minted PhDs with $50,000 or more in student loan debt. At those levels, you’ll be trading a portion of your monthly income for the rest of your life for a degree today. There are more PhDs today than ever before, which means the average wage for those with a doctoral degree is falling every year. If you plan to stay in college, apply for teaching assistantships or other campus jobs so your student loan debt won’t spiral out of control.

College debt is often looked upon by experts as “good debt” because it establishes your earning potential for a lifetime. But these days college debt is so high that even a great degree can’t save you from a lifetime of bill payments and debt collectors calling nonstop.

With a little forethought and careful budgeting, anyone should be able to complete a degree without being in debt forever. And trust us, it is absolutely worth the effort.