Student loans to fund education are the modern day reality. Few parents can afford to fully pay for their children’s college education and the costs involved have been growing at a far faster rate than inflation. The logic of taking out a loan is that on graduation there are improved career prospects that far outweigh the costs involved in repaying back the loan. Increasingly the question of taking on debt is being called into question even though in the case of student loans they are fairly flexible and relatively cheap. You will rarely get a debt collector knocking on the door but they can be a burden when you have other financial priorities.
You might be surprised about the size of some student debts; $20,000 is extremely common and $100,000 is far from rare. It is only about 10% who have that level of debt but imagine starting out on a career with the prospect of repaying that. Remember they will also be the need to pay rent, household expenses etc., even before thinking about saving towards retirement that really should be done as early as possible.
In a recent survey over 40% reported that the loan they took out was not worth it based upon the qualification they obtained and that does not mean that the rest were firmly of the opinion that it was worth it.
A Tight Budget
One of the reasons for the concern expressed is that calls on the monthly pay check inevitably mean that money is tight. Some clearly resort to subsidizing their lives with credit card spending, building expensive balances at the same time. Students are as much to blame as everyone else but in their case they have yet to receive a regular pay check because they have not even started their careers.
Starting working life with credit card debt and a student loan to repay is a challenge, particularly if you marry and begin a family. If ever there was a case for sitting down and planning your finances properly this is it. Your outgoings may well paint a bad picture but one thing you certainly should not do is subsidize your life by withdrawing cash on your credit card because that will merely increase your problems in the months and years to come. Not only have you got to find economies you need to actually borrow, but only to pay off credit card debt entirely with installment loan. The rate of interest available today is far lower than the interest rate that credit card companies apply on your monthly statement.
Getting rid of credit card debt is one of the most important steps; there are others:
- Do some research online, perhaps using comparative websites, to see if you can find a cheaper utility supplier.
- Do a similar exercise on your telephone network costs.
- Even if you have used the same insurance company for some time question whether there are cheaper alternatives for like for like cover. It is very easy to accept the annual renewals without question. If money is tight you have not got that luxury.
- Analyze your daily expenditure. Do you really need to buy a drink from a coffee shop when you can make your own at home? A few dollars a day that stay in your pocket adds up over a month.
- Think about your grocery bills. Are you wasting money by throwing food out in which case you may be buying too much anyway?
- Is your social spending justified: eating out for example?
That is the expenditure side of things and if the changes allow you to create a surplus put that to good use. If you can pay off your student loan quicker then great. At the same time consider building up an emergency fund. Ideally you want to have the equivalent of at least 3 months’ spending.
The other part of the equation is income and if you have the means of increasing that the picture will look better again.
Increasing your income may be difficult. It may not be worth the effort if it is a matter of moving to a different part of the country unless of course living costs appear to be comparable or better still cheaper. That brings into question your location and quality of life in general. If you are a big city person then you may never have questioned moving away to somewhere where the costs of housing and services are lower. If you can get a comparable wage with fewer standard living costs it must be a consideration for you and your family. When you reduce your outgoings then you can increase the amount of money you can set aside. That can be the emergency fund, certainly your retirement plan and it may extend to building up money towards your children’s education.
Remember that figure of 40% that is questioning whether the student loan burden has been worth it for the qualifications obtained. No one is suggesting that a good education is not a valuable thing but few can feel happy at the prospect of repaying as much as $100,000 as the cost of obtaining a qualification. There is little chance of educations costs reducing. The best way to address that problem arguably falls on parents whose financial management skills can make better preparations for their children’s college education. It is certainly a challenge.