Life in America is more expensive than it ever has been. Food, healthcare, transportation – the costs of these necessities and others have shot up considerably over the past generation while wages/salaries have remained stagnant.
This hasn’t stopped Americans from living their best lives, though. Where incomes are not able to afford things outright, credit cards have filled the void. Near zero interest rates and subprime mortgages/car loans have convinced people to buy properties/vehicle they couldn’t otherwise afford.
Similarly, easy access to student loans has helped young people to overcome the soaring cost of education. Costing less than $1,000 USD/year in 1980, today’s students shell out more than $20,000/year on average. If education tracked inflation, students would be paying approximately $2,100/year to go to school.
As a result of this lofty numbers, many students graduate with five or even six-figure debt burdens. This is a troubling trend, as student loans are exceptionally difficult to discharge through bankruptcy. In this post, we’ll define the student debt problem, discuss ways to keep this number low, and you can pay down your balance as quickly as possible post-graduation.
College has never been tougher
Unless you have wealthy parents, you’ll probably have to apply for a student loan. The days when you could pay for your tuition by working a summer job are long gone – average tuition costs at public universities have now crept above $10,000/year. Good luck finding a gig that pays $2,500 per month, never mind one that allows you to save that amount.
The stakes have never been higher. The employment market, despite low unemployment rates, is a tough one, as Millennials and members of Generation Z are competing for an ever-shrinking number of lucrative positions in fields like tech and engineering.
Unsurprisingly, students are under an enormous amount of stress these days. They devote as much time as possible to their studies, only taking time for extracurricular activities that complement their resume. To score a decent-paying entry-level job, getting top grades is a must.
Those who miss out are left to take whatever jobs they can find. Many of these positions are only available on a contractual basis, are poorly paid, offer few (if any) benefits, and have schedules that don’t guarantee set hours from week-to-week.
These are just a few of the factors working against students nowadays. Yet, given the paucity of opportunities for those with high school diplomas, many young people feel like they have no other choice but to take on a five or six-figure debt load – and hope it all works out in the end.
Keeping the debt monster in check
So, you need to take on debt to finance your post-secondary education. This doesn’t mean you are doomed to a life of wage slavery, though – by adopting a few crucial habits early on, you can avoid drowning in an ocean of red ink after college.
(1) Avoid credit cards – Avoid credit card peddlers like the plague. These predators lurk in student centers and unions at the start of every school year, hoping to prey on the ignorance of those who lack life experience.
Listen – you’re already tens of thousands of dollars in the red. Going deeper in the hole will only make things worse. When you look at the fine print, you’ll find that these cards charge absurd interest – 20-30% annual rates are not uncommon.
Fail to pay off your balance once (one crazy night at the bar is all it takes), and charges will add up faster than you could ever imagine. Live within your means – if you don’t have the cash for something, don’t buy it.
(2) Get a part-time job – As discussed earlier, some students feel the need to devote themselves fully to their studies. As a result, they don’t think they have room in their schedule to accommodate a part-time job.
It’s possible to excel in your studies, belong to a club, and be employed – it’s all in how you manage your time. Parkinson’s Law states that any task will expand to fill the time frame allotted for its completion. Working 15-20 hours per week will limit the amount of time you have to write papers, do homework, and study, forcing you to focus on the essentials.
This will not just improve your finances, but your grades as well. According to a study conducted by the Bureau of Labor Statistics, students who worked 20 hours per week or less logged an average GPA of 3.13, compared to the 3.04 achieved by their jobless counterparts.
Pair that with the $150-$200 per week a good part-time gig can get you, and you’ll get through college in better shape than many of your classmates.
(3) Refinance your loan – Most young people have little to no credit history. As a result, interest rates charged on student loans can be shockingly high. Fortunately, this can be fixed soon after graduation; about a year into your first job, shop around for a financial institution that will refinance your student debt. Having your rate dropped from 6% to 4.5% will save you about $750 per year in interest payments, amounting to $15,000 over a 20-year repayment period.
Good habits key to a prosperous future
Adopting solid financial habits in college will set you up for the rest of your life. By keeping yourself busy in school, you won’t be fazed by work projects that overwhelm many fellow entry-level workers. This will help you stand out to your superiors, paving the way for a promotion early in your career.
Additionally, there is enormous pressure to keep up with the Joneses post-college. By resisting the temptation to have the latest cars, clothes, and gadgets, you’ll have all the money you’ll need to pay off your student debt ahead of schedule.
Habits, good or bad, have a ripple effect. By sowing the seeds of responsible time & financial management, you’ll reap a bountiful harvest in the years and decades to come.