The Debt Hawk » Student Loans

Needing Some Focus – Student Loan Debt and College

Hawk — Tue, 22 Jun 2010 14:08:28 +0000

July 7, 2010 will mark the one year anniversary of my first post on TheDebtHawk.com. Over the last 12 months, I have loved writing this blog, but I have come to the realization that I need to be writing with more focus.

I never intended this site to be a general personal finance, but without a clear game plan, too often I have strayed that way. Don't get me wrong I have enjoyed all of the articles that I have written, however I started this site with one goal in mind,

I want to help parents and students through the tough college years by helping them to minimize the student loans they take out, get the most out of their college education and to pay off those student loans as quickly as possible after graduation.

I have already written a lot of articles on this topic already. Here are some of the ones you should go back and read:

College is such an important time in one's life and I hope that my renewed focus will help lots of students get the most out of it.

Getting Student Loans Can Be Career Suicide

Hawk — Tue, 15 Dec 2009 15:02:18 +0000

Law School Debt

Today I read an article from Jim at Bargaineering where he discussed how debt can limit you options - Debt Severely Limits Your Option. I wanted to highlight this issue and expand upon it for people looking at getting student loans to finance higher education.

In the above article, Jim makes the point that incurring debt can limit your future options. I think that people who are thinking about financing their college educations need to think long and hard about this point.

Going to college or graduate school can be one of the best experiences in life, however, if you have take out student loans to finance it, you better make sure that it is worth the money.

Here are some questions you need to answer before taking out student loans.

What type of job will this degree allow me to get?
What type of salary can I expect from this type of job?
Is that salary enough to pay back the student loans?
Is the salary worth the price of the education?
If I end up not liking that type of job, will I be able to afford to do something else?

Let me share with you my own experience. I loved both my undergraduate experience and my law school experience. But, I am not sure that financing law school with law school loans was a good idea.

Don't get me wrong, I like being a lawyer, but I my law school student loans closed some doors for me that I wish were not closed.

While I got extremely lucky coming out of law school by getting a job at a large law firm, today my career options are limited. Because of my law school debt, I cannot afford to take a lot of jobs that might interest me more, but pay less.

When I originally went to law school, I wanted to go into politics. However, after getting buried in law school debt, I cannot afford to do those types of jobs anymore.

So, if you are thinking about financing college or grad school, make sure that you really want to do that type of work. Also, make sure that you are comfortable with the answers to all of the questions above. You might be closing doors to less profitable, but more enjoyable careers.

Should I Consolidate Student Loans

Hawk — Mon, 14 Dec 2009 11:19:09 +0000

Should I consolidate student loans is a question most college graduates ask themselves. If there was a loan taken out for each semester and you were in school for 4 years, then that would be 8 separate loans with 8 separate payments. Making all of those payments can seem like a chore.

If every loan has the same interest rate and a new loan to consolidate all of them has the same or lower rate, then consolidation can simplify the payment process. This should only be done if it is the same interest rate or if the new rate is lower. If the new rate is higher, then you will end up paying more money for the convenience of paying only one payment each month rather than 8. For some individuals, it would be a fair tradeoff while for most it would not be.

It is true that 1 stamp costs less than 8 to mail the payment each month. If the payments are made with the assistance of online bill paying that is offered at most financial institutions today, there is no postage fee or charge.

When looking to boost your credit score, paying off 8 different loans simultaneously will increase your credit rating. The credit score agencies look at consolidation as a tool people use when they cannot manage their debt properly. By paying all of them off individually, your credit score will get a boost and the next loan you apply for will be at a better rate than if you had consolidated your debt.

This will only hold true as long as all of the payments are on time every month.

However, many people consolidate their student loans to increase the time they have to pay the money back. When I graduated from law school, I felt that I had to consolidate my law school loans and increase the term to 20 years. Today, I think that it was a mistake for me to do that. I should have lived more frugally and paid them off quicker.

I am not sure that there is a right answer to this question, but don't automatically think that you should consolidate student loans. See if you can pay them back without consolidating them. In the end, you will probably be able to pay them back quicker.

Did you consolidate your student loans? I would love to hear your experience in the comments below.

Increasing Government Financial Aid Hurts Students

Hawk — Mon, 05 Oct 2009 11:04:18 +0000

Mint.com put up a great poster on their site about the cost of a college education. At the bottom of this post I have included the poster. One of the things that I was surprised to see Mint discuss was how increasing government financial aid increases the cost of college tuition.

While there are many reasons for college tuition going up faster than the rate of inflation, one of the main reasons is increased Federal loan money. Every time our politicians increase the available money for federal student loans college raise their tuition by almost the same amount.

Why wouldn't they? Colleges know that the demand is huge for a college education. After all they rejected 85% of applications submitted by high school seniors. So, they know that there is a huge demand for their college. And, they know that this demand means that people will pay the higher tuition.

Politicians make this mistake time and time again because they want their constituents to think that they are helping students and parents. But, in fact they are really hurting middle class students.

Why do I think that middle class students are hurt disproportionately? Well, poor students get a lot of student aid grants and other need based financial aid. Wealthier students have parents who can afford to pay their college tuition. But, the middle class are hit hard by tuition increases.

College financial aid offices use income formulas to determine whether students qualify for need based financial aid. Most of these formulas start cutting off financial aid for families making over $65,000 a year. This prevents a lot of two wage earning families from receiving financial aid. So, middle class student are coming out of our colleges with the lion share of student loan debt.

Hopefully, the Government wakes up and stops increasing the amount of available student loan money. While it is great to be able to go to college, the unintended consequences of strapping our youth with ever increasing student loan bills is not good for our country.

Mint.com help from Mint.com

4 Reasons Why Student College Loans Are Dangerous

Hawk — Wed, 19 Aug 2009 17:17:58 +0000

I can't think of too many loans that are more dangerous than student college loans. 18 year old high school students are walking into a mine field every year, and society is doing nothing to help them. What makes student college loans dangerous? Let's find out.

Reason # 1: 18 Is Too Young To Make Such A HUGE Financial Decision

At the age of 18, 3 years before being able to drink a beer, college students are required to make one of the biggest financial decisions of their lives. Do I borrow money for college and, if so, how much do I borrow?

Most 18 year old students have never paid a bill before. But, we require them to be able to understand finance before having any experience with paying back debt. 18 year old college students are making financial decisions that will affect their entire adulthood at such an early age. That is crazy!!

Reason #2: 18 Year Olds Receive No Financial Education

It is a shame that our education system does not value financial education. We unleash high school graduates into the wild world of personal finance with almost no formal financial education. Unfortunately for our high school graduates, within months of graduating, maybe even before graduation, such students need to make this huge financial decision. I believe that our educators are committing malpractice by not providing a formal personal finance education in high school.

Reason #3: You Might Not Like Your Career Choice

Another reason why college student loans are so dangerous is that at the young age of 18 people don't really know what type of career they want to pursue. In fact, our colleges are turning out college grads who still don't know what they want to do for a career.

If you make the wrong decision for a major in college, in many ways you have wasted your money. Now your student loan debt is toxic because you might not be able to afford to pursue your desired career because of the mistakes your made at age 18.

I would like to blame this on a lack of career counseling both in high school and college, but this over simplifies the problem. The truth is these young adults don't have enough life experience to truly know what they want out of life and what they will enjoy doing.

What this says to me is that there is a fundamental flaw with our college education system. College is too expensive for students who don't know what they want to do for a career. This is too expensive of a mistake for us to allow it to perpetuate.

We could say then those students shouldn't go to college yet, but I would say that a majority of high school graduates don't know what they want to do. This means that there is a problem with the structure and scheduling of university education.

Reason #4: Young Adults Don't Understand Debt

In many ways, this topic was covered above in reason #2 above, but I wanted to hone in on this issue a little more.

What are college student loans? In many ways they represent the cost of being able to do the type of work that you want to do. But, must high school graduates do not truly think about them this way.

To high school graduates, student loans are just something that everyone incurs to pay for college. College students don't really understand how painful paying them back is going to be. The numbers are huge, and due to a lack of financial experience, student have no basis from which to understand the magnitude of the number.

Many college students don't truly understand the significance of interest rates, subsidized loans and unsubsidized loans. They simply don't have any experience with debt and its consequences. Heck, many adults don't really understand debt. But, we ask high school kids to make these decision every year.

Problems I Face With My Student Loan Debt

As you know, I have a lot of student loan debt. My financial life began with a mountain of debt. I have never lived as an adult without this yoke around my neck. Unfortunately, I am not alone. Every year more and more college students take out student college loans as naively as I did.

My Student Loan Debt

Hawk — Wed, 08 Jul 2009 10:49:45 +0000

Of all the debts that I have incurred, the debt that I have struggled with the most has been my student loan debt. As I sit down to write this post, it is hard for me to remember a time when I didn't have debt. But, there was a time.

Like most teenagers, I did not owe any debt until I went to college. But, boy oh boy, as soon as I stepped on that campus, my debt really started to rack up.

My first debt was student loan debt. I have very mixed feelings about incurring this debt. I went to a private college in Washington, D.C. and had an awesome experience, both academically and culturally. But, because I paid my own way through undergrad, I came out with a lot of debt.

After graduation, I immediately went to law school taking out the maximum student loans to pay for tuition and living expenses. Once again, I paid my own way and I am proud of that.

While I am proud that I paid my own way through college and law school, in doing so, I have never had financial freedom since I was 18 years old. So basically for my entire adult life I have carried around the weight of my debt.

So, was incurring my student loan debt worth it? That is a tough question. When I came out of law school, I landed a great job. To make over $100,000 a year at your first job is pretty good. But, it came with a high price tag.

So, while I have always made great money, a ton of my salary has always gone to pay back my student loans. Despite making a six figure salary, the amount of my student loan debt has never really allowed me to feel financially secure.

Starting my adult life at 24 with over $150,000 of debt is a terrible burden for someone so young. At the time, I just thought that everyone borrowed that type of money to pay for their education.

This debt both opened doors for me and closed doors for me. Most of the time college students are told about how getting a degree will open doors, but rarely are they told about how their student loan debt can close doors.

I hope that through my writings here at The Debt Hawk that I can help college kids understand the negative effects of student loan debt. What are your thoughts about incurring student loan debt?