The following guest post is from Ryan of CashMoneyLife.com. You can read more about Ryan, and his websites, at the end of this post.
Trivia question: Which type of debt is more prevalent in America – student loans or credit cards? If you said credit card debt, then you might be in for a surprise. A recent study showed Americans have more student loan debt than credit card debt (Americans owe $826.5 billion in revolving credit, most of which is credit card debt, and $829.785 billion in private and federal student loans).
There could be several reasons for student loans overtaking credit card debt. For example, many Americans are becoming more financially aware and are spending less and repaying their credit cards more quickly. Credit card companies are also tightening their purse strings and not approving as many cards as they did a few years ago. It’s also easy to point at the rising cost of college as the culprit.
Regardless of the reason, this new trend is alarming. Student loan debt is crippling the cash flow of a number of Americans and it should be avoided if at all possible.
Are student loans necessary? Before taking out tens of thousands (or even hundreds of thousands!) in student loan debt, ask yourself a few key questions to determine if the student loans are worth the cost, and if you have any alternatives.
Do you need to go to college? A college degree not only doesn’t guarantee a job, but it also doesn’t guarantee a high paying job. Before you go to college because “it’s expected of you,” or “that’s what the cool kids do,” you should take a few minutes and try to determine your career goals, what is required to achieve those goals, whether or not you need a college degree, and if it is worth the expense. Many times college isn’t the answer and taking student loans while you try to determine your career goals is a recipe for disaster.
Does your degree justify a high priced college experience? Do you know how much your college degree is worth? Take a few minutes to examine your prospective degree and how much you might earn when you enter the job force. You can most likely justify student loan debt if you are completing courses toward one of the highest paying college degrees. But can you justify thousands of dollars in student loan debt if you are working toward one of the lowest paying college degrees? Maybe, but you should temper your expectations.
For example, some entry level positions pay in the low $30,000 range and don’t go up much from there. These are noble professions, such as teachers, social workers, and similar professions. But they probably don’t justify financing $30,000 a year for tuition from a private university. Make sure you will be able to repay your student loans when choosing your degree and your school.
Alternatives to student loans. Take a look at all your options before taking out student loans. You may be able to attend a lower priced university, or even take your entry level classes at a community college and transfer to a four year college after you complete your basics. This saves both time and money. Consider living at home during part or all of your schooling to save money, or consider applying for a RA position to get free room and board. Some schools charge a flat rate per semester, regardless of how many course hours you take. If that is the case, load up on hours. You’ll finish more quickly and spend less money. Apply for scholarships and grants. Cash in savings bonds. Work part time or apply for a work study program. Tutor other students. You can join ROTC or the military and then use Tuition Assistance or the GI Bill to pay for college. You could also find a job that offers tuition assistance and go to night school.
There are literally hundreds of ways you can save money on tuition to avoid taking out massive student loans. And in this day and age, that looks like a more attractive option than mortgaging your future for tens and thousands of dollars in student loans.
About the author. Ryan Guina blogs about personal finance, money management, and military money topics at Cash Money Life and The Military Wallet.