While debt can be a useful tool to finance a college education, potential borrowers (and their families) would be prudent to think through their choices, as we discussed in a earlier 6-part series on fiscal planning. And, to add emphasis on the need to think ahead, Fidelity Investments recently found that, “[e]ven with the rising cost of college and challenges of student debt regularly reported in the news, half (50 percent) of 2013 graduates with student loans still say they are surprised by just how much debt they have accumulated.” Heed the lessons of the Class of 2013.
Tips for families considering student loans:
- Think through the consequences of debt, including delaying a home purchase or moving home with parents, which we also discussed in another post.
- From my own experience as a student loan borrower, I wonder what else I could do with the roughly $30,000 I repaid on the original loan of $18,500. Since the average student debt amount is $20,326, according to the Federal Reserve Bank of New York, and repayment will include interest, the estimated total repaid over 10 years will be $28,069.47. (The standard repayment plan for Federal Student Loans is 10 years.) What else could you purchase, invest, exchange those $28,000 dollars?
- Define the value of a college degree for yourself. Why are you willing to give 4 years (at least) of your time, plus potentially tens of thousands of dollars– in savings, current income and possibly future income (i.e. repaying debt)–for the college degree?
- Seek guidance about potential careers for a college degree in an intended academic interest. Find the peer mentors or other professional staff on a college campus or at a high school who can offer insights.
Source Credit: Fidelity Investments Cost-Conscious College Graduates Study, May 2013