More things to consider when thinking about student loans

I noticed that David Bergeron tweeted this blog post at USED about student loans. It is good advice with five points, but can probably be expanded.

1. Research starting salaries in your field.  Uh, yeah. The federal sources cited in the blog are useful, but the summary below looks like an art graduate would have no problem repaying student loans.

Quick Facts: Art Directors
2012 Median Pay $80,880 per year
$38.88 per hour
Entry-Level Education Bachelor’s degree
Work Experience in a Related Occupation 5 years or more
On-the-job Training None
Number of Jobs, 2012 74,800
Job Outlook, 2012-22 3% (Slower than average)
Employment Change, 2012-22 2,200

I’m not sure that’s true. Students would be well-advised to look at the resources put together by Virginia, Texas, Tennessee, and a handful of other states that have reported wage outcomes for very specific majors/degrees/institutions. For example, the median wage for general art graduates in Virginia at five years out was only about $37,585 in our 2012 reports.

It would also be a good idea to think about the cost of living where one plans to work.

2. Keep track of how much you’re borrowing.

And don’t EVER take out private loans! It is bad enough that there are no bankruptcy protections on student loans, but private loans are not eligible for any of the income-based repayment and public service loan forgiveness options.

Don’t ask or make your parents take out PLUS loans. Accept the fact they cannot pay out of pocket and find another option. PLUS loans have zero repayment options…unless your parents have student loans of their own that they can consolidate together. If that’s the case, they definitely should not be taking out PLUS loans. Accept that life is not fair and you simply may not be able to afford the school you want.

Don’t borrow more than needed.

Keep in mind, especially with PLUS loans, part of those loans is going to the college to redistribute to other students in the form of grant aid. Sometimes these students come from wealthier families than yours.  Also consider that what you might save in not having student loans, might cost you more if your parents have to live with you because they can’t afford to save for retirement while they are paying off student loans they took out for you to attend your dream college.

All three of the Department’s final suggestions come down to basic good practices whenever one signs a contract.

3. Understand the terms of your loan and keep copies of your loan documents.

4. Keep in touch with your loan servicer. 

5. Stay ahead of your student loan payments.  

Don’t ever get behind. Don’t default. Whatever you do.

Become familiar with income-based repayment options (PAYE/IBR) and talk to a financial advisor and see if they make sense for you. Remember – these options do not apply to private loans!

Other suggestions

Research the history of student debt at the institutions you are considering. Virginia  makes it easy and Texas has a couple of web tools that blend debt and wage outcomes products together. This can be useful.

Think hard about what you are doing and why. Look at it as a business decision. By itself, debt is not necessarily bad. But too much debt compared to what you need to live and what you earn is pretty much evil. What is “too much debt” may vary a bit on a case-by-case basis, but not really very much.  USED recommends that student loan payments should be 8% or less. Try for 5% at most.

Borrow cautiously. Very cautiously.

 

 

Be nice. It won't hurt either of us.

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