I have worked in financial aid for over 25+ years. In that time I hear and read many students of mine and students elsewhere say the immortal words, "No One Told Me." I am telling you! I am not going to make this everything you ever wanted to know about student loans. There is plenty of that to read.
Borrowing loans can be a positive decision that can lead to a better life. Students with college degrees typically earn 66% more then students who only have a high school diploma. Estimates say 2/3 of the jobs by 2020 will require a degree.
No One Told Me #1: Here are two important exceptions to this:
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1) Students who borrow for their education and never successfully complete their degree.
2) Students that over borrow to get their degree.
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No One Told Me #2: What is too much to borrow?
A quick and easy rule of thumb is borrow no more then the salary you would expect during your first year working. That includes all your loans; Subsidized, Unsubsidized, Perkins, Alternative Loans, School loans.
There are calculators on the internet that will assist. I have seen no more then 10-15% of your income should be going to your student loan(s) payment(s).
No One Told Me #3: Do NOT overestimate how much you will make after college. This could allow you to mistakenly over borrow for a degree.
Nearly half of the graduating class of 2015 said they expect to make $40,000 or more annually in their first year. Only a quarter of the class of 2013 and 2014 earn that much. For 2015 graduates the average salary for ages 21-24 was $36,000.
In April 2016 the NYC Comptroller Scott Stringer released a report on young people and the economy.
"Due to the erosion of good paying jobs, this generation of New Yorkers earned about 20% less in 2014, adjusted for inflation, then their counterparts who entered the job market in the 1990's."
"The percent of young adults working in low-wage industries who have a bachelors degree grew from 23% to 33% from 200 to 2014."
No One Told Me #4: It is far better to underestimate your potential income then over estimate it after college. Word of mouth of what you can expect to earn is not a useful way to think. The Admissions staff estimates of their college graduates future income are very very often not accurate. The Admissions staff is there to sell you on choosing that school.
No One Told Me #5: The legacy affect: A great many colleges promote themselves as a college that will boost your future career and income. There are hundreds of colleges in this group that are excellent colleges and may provide a great career. In reality 2-3 years after you graduate the college will go to the bottom of your resume and what you have done while working will take precedent. That great sweatshirt with your college's logo will be cool to wear years afterwards but you do not want to carry along too much student loan debt that will weigh you down much more.
* Yes, if you went to Harvard that carries some weight you may take with you the rest of your life. That is the exception and not the rule even for great colleges.
No One Told Me #6 Parents: You want to help your child, we all do. Consider carefully before choosing a college how much you can realistically afford to borrow and pay back going 10-20 years into the future. How close to retirement are you? How is your health? When you borrow you have to consider four to five years of borrowing and then the repayment. Is co-signing your child's private loans for college a good idea.
I have a friend who co-signed his child's private loans. He got a call at work one day from a collecting agency to make good on his child's private school loans he co-signed. A bit of a shock as his child was too embarrassed to admit to my friend they were having difficulty paying back their loans. The other shoe dropped when the child told dad he was having trouble with all his loans. My friend had to work years beyond a point he wanted to retire to assist his child. The time came to retire and his health was not as good.
We all want to be good parents and do everything we can for our kids. But think realistically before your child makes the decision of which college they are going to. If you are forced to borrow beyond a point you are comfortable with, maybe the choice of college is not right. Hard to say, but money matters in a college decision process.
No One Told Me #7: Many companies have sprung up in recent years to "assist" students with reducing their loan payments. They charge a fee to do what you can do for free. Ask your loan servicer for a Income Based Repayment and or other method to reduce your loan payments for the short run. Save yourself and make the call to the loan servicer yourself.
No One Told Me #8: Negative Amortization: (An Example) If I borrow $80,000 at 3.76% the yearly interest is about $2,900. If I make $30,000 a year and get onto a Income Based Repayment I will pay around $166 per month. That totals payments of $1,992 for the year. That does NOT cover the interest! The interest gets added back into the principal of the loan and now you owe $80, 908. This may be a good Short Term plan for paying back your loans but a terrible long term one.
No One Told Me #9: Interest over time:
You borrow $40,000 at a interest rate of 3.76% and pay back $400 monthly for that loan for 10 years. At the end of 10 years you will have paid back $8,052 in total interest.
You borrow $40,000 at a interest rate of 3.76% and pay back $206 monthly for that loan for 25 years. At the end of the 25 years you will have paid back $21,761 in total interest.
You can lower your monthly payment by extending the years BUT you pay back much more interest in the long run.
No One Told Me #10: In the early parts of repayment you pay back more interest and less principal, as the loan progresses over time you pay back a lesser percent of interest and more principal. In the early stages of repayment you will see more of your payments go towards interest. That is not a scam or con but the way loans get repaid. It happens with car loans and home loans. Student loans are the same way.
So now I told you.
