College and the Student Debt Trap

In October I had the distinct opportunity to speak to fourth year students at my alma mater, The University of Virginia.  The university was founded by Thomas Jefferson in 1819 and is steeped in tradition.  You just witnessed one of those traditions:  there are no freshmen, sophomores, juniors or seniors, they are first-year students, second-year students, well, you get the idea.

Speaking in the very room where I learned Business Law, I was amazed at the 100 or so eager faces at 8:00 a. m. (I know I wasn't that eager at that time of the day at that point in my life.)  I used to believe that college students would be fun to teach because they wanted to be there.  Today, that is truly an understatement.  Yes, teaching is fun, and more than ever, students are going into debt in order to receive a higher education, so they definitely want to be there!  They are concerned about the debt they are facing; they definitely wanted to hear what I had to say!

Suze Orman states that college debt is good debt.  I don't believe that any debt is good; my philosophy is to save for something before you make the purchase, including college.  However, here's something to consider:  students who graduate with a bachelor's degree, not even a masters or a doctorate, but simply an undergraduate degree, will earn 83% more than those with only a high school diploma. 

Not everyone can save before attending college and here are some statistics:

• Since 1989, tuition inflation has been running at 6%, twice the 3% rate of general inflation
• College students graduate with an average of $19,200 in tuition debt; graduate students can have upwards of $100,000 in tuition debt
• 25% of all students are putting their tuition on their credit cards
• 75% of all students have a credit card, and 40% of all students have more than four credit cards

For those who aren't fortunate enough to save for college first, or who don't receive a grant or scholarship (grants and scholarships are gifts, and thus don't have to be repaid), here are some tips to weather the student debt storm:

• Apply for financial aid at:  www.fafsa.ed.gov.
• Pay interest on your tuition debt while you are in school; this will help in a two-fold manner: 1) your debt will be lower when you graduate, as you'll only be paying the principal, and, 2) you'll get in the habit of making monthly payments.
• Only take out loans for tuition; don't be financing pizzas with debt.
• Once you graduate, always pay your loan on time, and consider having the payments debited automatically from your checking account.  In both instances your lender may give you a break on the interest rate, or perhaps even forgive some of the balance.
• Ask your lender if you can make smaller payments when you graduate and larger payments as you advance in your career and command more salary.  Lenders are usually willing to work out payment plans such as the accelerated plan mentioned above.
• Lenders may forgive your entire loan, based on your profession, such as teaching and emergency services.

Unfortunately, student debt is a fact of life today, with state tuitions averaging $16,000 per year and private universities averaging $32,000 per year.  An Ivy League education is approaching $50,000 per year.  Stay the course, and stay in school, as your earning power will be much greater.