360° Coverage : Avoid The Dark Side Of Debt: How Best To Take Out Student Loans

10 Updates

Avoid The Dark Side Of Debt: How Best To Take Out Student Loans

May 12 2014, 7:49am CDT | by

EDITOR’S NOTE: This post is adapted from the Forbes eBook, The Millennial Game Plan: Career And Money Secrets To Succeed In Today’s World, by Laura Shin. If you’d like to learn more about how to...

Filed under: news

 
 
 

11 weeks ago

Avoid The Dark Side Of Debt: How Best To Take Out Student Loans

May 12 2014, 7:49am CDT | by

EDITOR’S NOTEThis post is adapted from the Forbes eBook, The Millennial Game Plan: Career And Money Secrets To Succeed In Today’s World, by Laura Shin. If you’d like to learn more about how to take out student loans, decide whether to attend grad school and/or find funding for grad school, the title is available now for download at Apple (iBooks), Amazon, (Kindle) and Vook (Nook, etc.).

Leeanne, a 31-year-old video producer who asked that only her first name be used, graduated from college with $20,000 in debt. One reason it wasn’t higher was that her parents had taken out loans themselves.

But her husband, Christopher, 28, who had been the first in his family to go to college, had more than $100,000 in loans—nearly all of them private loans, which are harder to pay back because they offer less flexibility.

With his $800 monthly loan payment and her $120 one, they were shoveling almost $1,000 a month toward their debt.

A few years after college, Christopher, who was working on HIV at a nonprofit, soon found that many of the jobs he desired required a master’s in public health. For a better and more fulfilling career, they decided that he should pursue one. The two-year program costs $50,000 per year, adding another $100,000 in loans to their debt. When he graduates next year, their monthly loan payments will be $1,720.

The burden is affecting all of their major life decisions. They’ve already delayed having kids for two years and will reassess how much longer they should wait next year, after he graduates.

“I keep crunching the numbers for the student loan monthly payment: Our rent, food, utilities, bus passes, etc., and adding daycare onto that sounds impossible! This is why we haven’t had kids yet. Every day I just want to cry. It’s so overwhelming and so stressful. My husband is working so hard in grad school right now to be able to get a good job because nowadays having just a bachelor’s degree isn’t enough—but who knows if he’ll even be able to find a job,” she wrote to me.

Their situation also underscores how difficult it is to dig out of debt. One common strategy to reduce payments consists of signing onto an income-based repayment plan, but these are only applicable to federal loans. It won’t help with the bulk of his undergrad loans. Then, the only way they can pay the loans is if they both work, but if they make too much money, then they won’t qualify. Finally a glance at the baby/student loan math shows they can’t afford daycare, but they also can’t afford for Leeanne to quit her job and stay home with the baby.

The debt has impacted more than their baby plans. “It’s in every single conversation about our future and about money,” she told me by phone. “Whenever we try and dream about the future, it always gets really bogged down and depressing, and the thought of buying a house is just impossible: ‘That’s not going to happen.’ And retirement—we’re both pretty smart and we know what we should be saving, but it’s like, how’s that going to happen? … We’re both very loving and accepting and we treat each other as equals—but there’s this thing where he feels guilty because he’s the one incurring more debt … That’s a thing that comes up: ‘I’m sorry that I’m burdening our relationship with more debt and more stress.’ The person with more debt feels bad, and it’s this weird, terrible underlying current to our entire relationship.”

Leeanne and Christopher aren’t atypical for their generation. Millennials, which includes adults born after the year 1980, are the most educated generation compared to previous ones, according to a February 2014 Pew report: Thirty-four percent of those ages 25 to 32 have a bachelor’s degree or more, compared with 25% of Gen Xers, 24% of Baby Boomers and 13% of the now mostly retired Silent generation at that age.

But, on the flip side, this cohort also has struggled more with student loan debt than previous ones. Student loan debt is at a record high. Seventy percent of college seniors graduate with debt while the average student loan debt is $29,400. From 2008 to 2012, debt at graduation increased 6% a year, according to the Project on the Student Debt.

As shown in Leeanne and Christopher’s story, the impact of debt isn’t confined just to one’s school years. It can affect every other major life decision, from buying a house to having kids to saving for retirement.

The lesson to learn from their story isn’t that all student loan debt is bad, but that it’s important to take on debt in a way that helps instead of hinders you in achieving your life goals. Here are five tips:

1. Avoid taking on debt that exceeds your expected first year’s salary.

This applies to student loans for both undergrad and graduate school. (When making the calculation for graduate school, including any remaining undergraduate debt you have.)

If your loan debt is more than that first year’s salary, you’ll struggle to make those loan payments and may need alternative payment plans such as extended repayment or income-based repayment. “And that stretches out the term of the loan to reduce the monthly payments, and you’ll be paying more interest over the life of the loan than you otherwise would and you’ll still be in debt when your own children go to college,” says Mark Kantrowitz, senior vice president and publisher of Edvisors, publishers of more than a dozen websites about planning and paying for college./>/>

2. When you have to borrow, go with federal loans before private loans.

Federal loans have fixed interest rates whereas private loans offer variable rates. Even if you find a low rate from a private lender, nothing will stop it from jumping the next month. Given how low today’s interest rates are, it has nowhere to go but up. A fixed rate will provide some predictability to your budget.

Federal loans also offer the advantage of a deferment period, in which the borrower doesn’t have to make payments such as when he or she is enrolled in school, unemployed, experiencing economic hardship or serving in the military, among other situations.

The Forbes eBook To Succeed In A Brutal Job Market
Don’t let a rotten economy spoil your goals. Use the career and money advice in The Millennial Game Plan to get and stay ahead for good.

3. If you decide you have to take out private loans, do so only after you have maximized your federal loans.

Keep in mind that if you need to take on a private loan to make up for any gap between your need and your financial aid package, you may be taking on too much debt.

It’s hard to compare private loans because they don’t do upfront pricing. “They don’t say, ‘This is the interest rate you’re going to get,’” says Kantrowitz. “You have to apply first, and then they’ll tell you what the interest rate is going to be. So, you should shop around.” The lender with the lowest advertised price may not offer you your best rate. They may offer you your worst rate.

4. If you attend school on student loans, live as cheaply as possible.

Live at home or with a roommate, don’t get a car and buy used textbooks—and then sell them at the end of the semester. If you’re under 26, stay on your parents’ health insurance, or forgo the meal plan and instead cook your own meals. Take prerequisites more cheaply at a community college before enrolling in the program.

5. Don’t forget the various education tax benefits. 

Make sure to get the American Opportunity Tax Credit, the Lifetime Learning Tax Credit or the Tuition and Fees Deduction, which give you a little bit of money back on your federal income tax return based on the amount you pay for your education.

Speaking of taxes, only the portion of any money you get that goes to tuition will be tax-free. “When you’re receiving money that’s a fee for services, like a [graduate] teaching assistantship, that money is taxable. Even the tuition waiver portion may be taxable. When you’re receiving a graduate fellowship where no services are required to receive that fellowship, only the amount for tuition and fees will be tax free. Any amount for living expenses is going to be taxable,” says Kantrowitz.

Education is usually a step toward a better life as long as it’s done right. If you decide to pursue the next level degree, don’t expect that it will take care of your future for you. Effort can and does reap rewards. As you would in the professional world, approach college or grad school as a place you need to prove yourself to others and as a launching ground for what will eventually become your full-fledged career. While the next step in education may seem like a large financial investment, you won’t realize the opportunities it dangles before you unless you also invest your time, energy and effort.

You can buy The Millennial Game Plan: Career And Money Secrets To Succeed In Today’s World,” at Apple (iBooks), Amazon, (Kindle) and Vook (Nook, etc.) now. Learn how to forge a career in a nasty job market, earn more, finance your own ventures, focus in an age of distraction, make the grad school decision and manage your money.

/>
 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat wa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Rak ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammuddin Hussein ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the souther ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri Mustapa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

8 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year inv ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

8 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Baz ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

8 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinra ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Ebola outbreak: $100 mn response plan in West Africa
Geneva, Aug 1 (IANS) The director-general of the World Health Organisation (WHO) and presidents of West African countries hit by the Ebola virus outbreak will Friday meet in Guinea to launch a new $100 million response plan.
 
 
OPEC daily basket price closes lower
Vienna, July 31 (IANS) The basket of 12 crude oils of the Organization of Petroleum Exporting Countries (OPEC) stood at $105.21 a barrel Wednesday, against $105.44 Tuesday, according to the OPEC Secretariat.
 
 
Ebola outbreak not a global threat: Report
London, July 31 (IANS) The deadly Ebola virus does not pose a global threat, a latest report has claimed, adding that as long as the virus continues to infect people in Liberia, Guinea and Sierra Leone, there is small risk of more long-distance export of the disease.
 
 
Getting chatty with meow chat
New York, July 31 (IANS) A new chat app is on the prowl, stalking users on social networks like a cat.
 
 
 

Latest from the Network

Indian medal winners at the 2014 Commonwealth Games
Glasgow, Aug 1 (IANS) The following is the list of Indian medal winners at the 2014 Commonwealth Games here: Gold: Sanjita Khumukchan: women's 48 kg weightlifting Sukhen Dey: men's 56 kg weightlifting Abhinav Bindra:...
Read more on Sport Balla
 
Zoe Saldana is a 'bad influence' on sisters
Zoe Saldana claims she is a ''bad influence'' on her sisters, Mariel and Cisley. The 36-year-old actress, who is reportedly expecting twins with husband Marco Perego, admits she has ''almost 10'' hidden tattoos on her...
Read more on Celebrity Balla
 
Kylie Jenner gets new Range Rover for birthday
Kylie Jenner has got a new Range Rover ahead of her birthday. The 16-year-old reality TV star - who will turn 17 on August 10 - shared a photograph of the expensive black vehicle, believed to have been a gift from her...
Read more on Celebrity Balla
 
Ne-Yo sues accountant for $8 million
Ne-Yo is suing his former accountant for $8 million. The 'Closer' hitmaker, real name Shaffer Smith, has filed a new lawsuit against his one-time ''manager, confidant, trusted adviser and friend'' Kevin Foster in...
Read more on Celebrity Balla
 
Brad Pitt and Angelina Jolie exchanged love letters
Brad Pitt and Angelina Jolie exchanged romantic love letters when they were forced to be apart last year. The 39-year-old actress, who has six children, Maddox, 13, Pax, 10, Zahara, nine, Shiloh, eight, and five-year-...
Read more on Celebrity Balla
 
Perfect day for Indian shuttlers at CWG
Glasgow, Aug 1 (IANS) Indian shuttlers had a perfect day at the Commonwealth Games as all of them won their respective Round of 16 matches to proceed to the quarter-finals at the Emirates Arena here Thursday. To start...
Read more on Sport Balla
 
Tintu fails to qualify for women's 800m final
Glasgow, Aug 1 (IANS) Indian athlete Tintu Luka failed to qualify for the women's 800 metres final at the Commonwealth Games here Thursday. The 25-year-old could only manage to finish seventh out of eight competitors...
Read more on Sport Balla
 
Apple TV Release Pushed Back to 2015
The consumers will not get new Apple TV in this year, as a new report claims that the debut of the specific device has been delayed until 2015.According to Mac Rumors, the news has been published by the Information,...
Read more on Apple Balla
 
The Basic Model of the New 15-Inch Retina MacBook Pro Shows Significant Speed Boost
The recently released entry level 15-inch Retina MacBook Pro can work faster than its predecessors, as it shows a decent score in the GeekBench test.According to Mac Rumors, after going through the GeekBench3 test, the...
Read more on Apple Balla
 
Ebola outbreak: $100 mn response plan in West Africa
Geneva, Aug 1 (IANS) The director-general of the World Health Organisation (WHO) and presidents of West African countries hit by the Ebola virus outbreak will Friday meet in Guinea to launch a new $100 million response...
Read more on Business Balla