You may not be aware, but the money that the government loans many students during college must be paid back…in full. Go figure. On top of that, there is an interest rate attached to said loans. Just weeks ago, Congress passed a bi-partisan bill that cut that interest rate from the uncomfortably high 6.8 percent to a more reasonable 3.86 percent.
Now, none of this is life-changing legislature, as an average student paying back loans might save just $30-$40 per month with this new rate. What this recent legislature has shown me, personally, is that college graduates are seen as basically incompetent when it comes to paying back their student loans.
The government is treating them just like Goldman Sachs, Freddie Mac, and other Wall Street companies that went under. The government is forgiving college graduates way too much and making student loans more and more enticing each year.
There is a change that needs to be made to the student loan program—a change that needs to involve a dose of reality with every loan given out. In reality, you might not even graduate. If you do graduate, chances of finding a decent, well-paying job immediately after graduating are lower than what you might think. No one will tell you this when you are applying for a loan, though. Instead it is all rainbows, sprinkles, and six-figure salaries right out of college.
To combat this, the image of a student loan should be altered in your mind. Do not think of it as free money that the government is giving you until you land a high paying job. Instead, think of it as a ticking time bomb, set to self-destruct exactly six months after you graduate, or worse, when you stop going to college.
Now think for a moment if you can diffuse that bomb before that six months is up. If not, think of how you can avoid a direct hit from the blast. In the end, what you borrow must be repaid, with interest. That’s all there is to it, yet more and more recent graduates are failing to pay their loans due to inability to pay. If you do not have the means to pay back your loans, your entire financial future will be dead on arrival before you can even begin laying the proper foundation for success.
I’m not trying to scare everyone away from taking out loans. I, for one, am all for them, and think they offer an opportunity for education that would otherwise not be available to many. I simply advise that you think before you sign for that $3,000 loan that you could probably do without.
My advice? Try for scholarships or make a budget for each school year. I’m not asking you to go win the President’s $30,000 scholarship. Just aim for a goal of maybe $1,000 per year. It is surprising how much small scholarships like that can help.
Lastly, budgeting each semester will help you cut back on personal spending that can be put towards paying off student loans early. Just remember to be a smart and informed borrower so that the loans you take out today will not come back to haunt you in the future.
