Student loans: a good debt for the future

With the freedom of college life often comes students’ first exposure to the grown-up world of independent finance, with one commonality – student loan debt.

College is a series of decisions.  We choose majors, student activities, and which classes we will take, yet the most important decision is how to pay for college.  Each decision affects the next and seems to affect our future in different ways.

While wrong decisions can be made right, and the decision to attend college usually outweighs not going, the debt college students accrue does not just vanish into thin air after graduation.  The cost of tuition, books and rent is on the rise, and does not seem to be shrinking anytime soon, making student loans a necessary evil for roughly 86 percent of students currently in college or recently graduated.

Student loans are referred to as “good debt,” or debt that is worth it because, in the end, there is a long-term payoff: an education.  But who knew that graduating from college would automatically hurl students into the unknown world of a 20- to 30-year mortgage on their education?

For many, student loan debt is necessary in order to pay for college, but, more often than not, students borrow more than they  need for tuition.  This “extra cash” could mean food, housing or even party money.

The National Center for Education reported that approximately 50 percent of full-time undergraduate college students paid for some part of their tuition with student loans.  In 2011, the average student loan debt for graduates was $26,600, and that number is only going to rise.
The national average cost for an in-state student to attend a four-year, public university is $36,100; if a student chooses to attend a private four-year college, the cost jumps exponentially to $124,700.  Attending and paying for a private university is like buying your first home, with the same 30-year payback schedule.

Recent high school graduates may not have experience with “real world” expenses, such as rent, and fail to remember they exist. This overconfidence may cause students to bite off more than they can chew in student loans.

This brings us to the dismal state of the current job market.  The 2012 graduates could be in for a rude awakening as they begin searching for that “perfect” position in their field of study.  Presently, one in two college graduates is either jobless or underemployed and/or underpaid.  With those numbers, it seems that the $1 trillion outstanding national student loan debt will remain just that, outstanding.

To provide some relief for those students who are drowning in college debt, the government has options to help them stay afloat and pay loans off on time.  If you are one of the fortunate who only needed federal student loans, you are in pretty good shape.  Federal student loans often have better interest rates than private loans and are more easily consolidated.

If you had to dip into the private loan sector, like Sallie Mae for example, because tuition and/or costs, books, housing, etc., were more expensive than the amount covered by the federal student loan, this may throw you into higher interest rates or worse – variable rates.  Another downside of private loans is they cannot be consolidated with federal loans.

With that said, President Obama has the Obama Student Loan Forgiveness program.  This program provides that if a borrower makes the required payment on time for 20 years, then the remainder of the student’s debt will be “forgiven.”  Whew, that helped.  The kicker is that this only applies to Stafford or Perkins loans but not to the private loan sector, which is where many students received their loans.  Not so much help anymore.

Additionally, students who are in the Army National Guard could be eligible for its Student Loan Repayment Program that offers up to $10,000 in relief.  Students who become full-time teachers in an elementary or secondary school serving low-income families can have a portion of their Perkins Loan forgiven under The National Defense Education Act.  Many law schools will forgive the loans of students who serve in public interest or nonprofit positions.

The U.S. Department of Health and Human Services offers loan forgiveness programs, and the U.S. National Institute of Health will repay up to $35,000 per year of student loan debt for U.S. citizens who conduct clinical medical research.  The U.S. Department of Agriculture forgives $25,000 per year for three years for veterinarians who commit to work in a veterinary shortage area for three years.

One thing students do not want is to let their student loans go into default. You default on your loan when you miss payments for 270 consecutive days.  That may sound easy enough to avoid, but the default rate for borrowers who defaulted on their federal loans within the first two years was 9.1 percent as of 2011; that number is on the rise due to high unemployment rates and a strained economy.
Oh, and do not think you can get out of paying your student loans by declaring bankruptcy.  Federal student loans cannot be included in bankruptcy proceedings; if that were the case there would be no federal student loan debt.

At first glance, it appears that the help available to students who have student loan debt is not what is actually needed with an economy this tough and jobs that are in short supply, but the fear of student loan debt should not get in the way of gaining a higher education.

Before you decide to take out a student loan be sure that you know the specific amount you need and only take that amount.  Remember, there is no better investment than in your own future, but the good debt you acquire today could quickly turn into bad debt after graduation if you are not careful.