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College Students: Don’t Let Your Future Be Overshadowed by Debt

Credit Wise (featured column)
by Jennifer Wallis

Many college students walk around with the mentality made famous by Timbuk 3’s one hit wonder song "The Future's So Bright, I Gotta Wear Shades." When you’re young it’s easy to feel that the world is your oyster and holds great possibilities. For many, this can be true. For others, the road to the future may be pitted with a few potholes and detours along the way.

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Debt is a growing problem among college age students, with 18-24 being one of the fastest growing age groups for bankruptcies. According to a study by the Institute for Financial Literacy, bankruptcies by bachelor’s degree holders has jumped 20% in recent years. One major factor is student loan debt.

According to Consumer Reports, student loan debt is set to exceed $1 trillion later this year. Nationwide, student borrowing is estimated to have mushroomed to $931 billion — for the first time eclipsing the estimated $798 billion in credit card debt. The average student loan debt for a bachelor’s degree is $27,200.While it is very difficult to file bankruptcy on student loan debt (unless you can prove that you are unable to work), those with student loan debt are filing bankruptcy on other obligations in order to afford their student loan payments.

While student loans may be a good investment for many, it is important to handle them wisely and borrow with care. These tips can help you make all the right moves when it comes to your education without sacrificing your financial future.

Don’t borrow more than you need for classes and books:

Don’t use student loans to pay for food, gas, or Spring Break trips. Work while in school to help cover living expenses in order to reduce the amount that you must borrow.

Reconsider going deep into debt for a low paying career:

Many students aren’t even clear of what they want to do after they graduate. Choose a career that will give you a return on the investment you are making in your education. If you are choosing a low paying career, consider attending a less expensive school.

Don’t assume you will find a high paying job after graduation:

Meet with a career counselor to research trends in the job market to make sure jobs will be plentiful in your field after graduation. Do an internship to gain experience while you’re still in school. Experience counts.

Apply for as many scholarships and grants as possible before turning to loans:

These don’t have to be paid back so apply for as many as possible before you borrow. Meet with your financial aid office to see which ones may be available.

Make sure you get a degree after borrowing student loans:

Student loans must be viewed as an investment in your future. They only pay off if you obtain the degree, so do everything you can to stay in school.

Explore the different types of loans:

Money for college that doesn’t have to be repaid such as scholarships and Pell Grants are very desirable. Next on the list in terms of grace periods and low interest rates are Perkins Loans. These types of funding have income limits so high income families will not qualify. Subsidized Stafford loans are next in terms of desirability because the government pays the interest while the student is in school. If you can’t qualify for those, it may be necessary to borrow using an unsubsidized Stafford Loan. Another option is a PLUS or parent student loan, where a parent must qualify for the loan. If it isn’t repaid according to the contract terms, it will also impact the parent’s credit report.

While optimism is refreshing, it is also important to be realistic when planning your future. College can be an incredibly exciting time but it is important to make sure any debts that are incurred can be paid back. A high paying job straight out of college isn’t the norm, especially in these days of a more competitive job market. Be conservative with the funds you borrow and creative with other ways to live frugally while in school. With careful planning, your future will look much brighter when you aren’t starting out life in the “real” world saddled with debt.

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Copyright © 2011 by Jennifer Wallis. All rights reserved.

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