Everyone has an opinion about student loans. And most of the coverage we hear about student loans is bad. And for good reason. The higher education system in our country is not created equally.
For most people student loans are bad. But there are examples where I am a total advocate for student loans.
Reasons why student loans are bad:
- Debt is not dischargeable . Ever. If you have loans when you retire, the debt owner can garner you social security checks.
- Interest rate – The average student loan interest rate is over 5%
- The interest on the loan start accruing the day you take out the loan. Congrats new freshman.
- You MUST start paying those loans back after 6 months.
- They can be a mental burden. No one wants to feel like that have an anchor holding them down.
There are some professions that you cannot get into without a college degree and even advanced degrees. Most people do not have $100,000 to just write a check to a law school.
Reasons why student loans are good:
- You can focus on school without worrying about how you are going to pay for school.
- You can go to a better school and get an advanced degree.
- They can help you get a higher paying job.
- They can educate you about personal finance and how the financial system works.
- They can motivate you to be more serious about you education and professional success.
I would consider my sister and I rich. We are not millionaires, but we are well on our way. And we got there in 2 completely different ways.
My sister took out student loans.
I did not take out any student loans.
My sister knew from the age of 5 years old that she was going to be a doctor. Ridiculous. My mom has pictures of my sister dressed up as a child playing doctor on her stuffed animals. My parents were not rich, but we had a great childhood in the middle class. My mother is a retired elementary school teacher and my father is home builder.
We were both lucky enough to have our undergraduate college education paid for by our parents.
Thankful to be done with college, I immediately went out and started working. My sister went on to medical school in Texas.
The national average cost of a 4 year medical school degree is $278,000 for private and $207,000 for public school. That is just medical school. That does not include an undergraduate degree.
The majority of medical students must take student loans. And so my sister did. Coming out of medical school about $200,000 in debt.
Today, she is rich. She lives in Colorado goes skiing every weekend, lives in the best apartment and goes on the most incredible vacations. She dives a new Toyota truck. And she still has student loans 10 years after graduating from med school.
This is her rich life.
I took a different route.
I went to work right out of school. My first big job was working at the Apple store. It didnt oay much.
I always lived in an apartment with a roommate.
I saved as much as possible and didnt go on vacations.
I bought and paid off a house and started a business. I have a rambunctious black lab puppy dog. All while climbing the corporate ladder on a modest strategy.
Today I have no debt and a growing business and go on lavish vacations and get to volunteer. I have all the investment vehicles: 401k, ROTH IRA, and HSA.
My life is rich and I am getting the place where I have financial independence from my job. I give to charity and I have money to invest in different things.
I sacrifice, but drive a paid for Lexus, go on world vacations and go to concerts all the time.
My life is full. Without student debt.
My sister makes more than 4 times my salary.
Student debt was a great choice for her. She gets to do what she loves and is well paid for her services.
What to ask yourself before you take student loans:
- How much money do I need to make to pay off this loan?
- Is the school worth the amount of the student loan?
- Have I applied for all scholarships possible?
- What is the timeline I want to pay off my loans?
What you need to know about student loans:
- There are Federal and private student loans, you may need both. Try to limit the amount of private student loans you take.
- What is the interest rate and what are the fees?
- Only borrow what you really need.
- Who is the servicer and who do you send the payment?
- If you have good credit you can refinance student loans. Start here to learn about lowering payments.
- What date are you going to be finished paying off student loans? Use this student loan calculator to get specific.
Strategies to pay off student loans:
- Pay off the highest interest rate first
- Federal consolidation
- Pay more then minimum
- Make biweekly payments
- Live within your means
- Have support
- Pay off interest before while in school or before payments are required.
- Increase your payment size as you get a raise
Start with the end in mind. Determine what you want and then get a loan to get there. Do not discount the power of scholarships. Fill out the FASFA form here. Learn as much as you can about financial aid here.
You can apply for scholarships before you enter school and while you are attending school. Create a system to apply for financial aid and do it continuously throughout your education experience. One of my favorite college scholarship websites is Fast Web.
One of my favorite websites to learn about student loans and investing is The College Investor. There are articles to learn about repaying student loans and investing while in college.
There is no greater investment than in yourself.
Do not wait till you have paid off your student loans to start investing. Download the Automation Worksheet to create your wealth building system. And start investing in the market as soon as possible. The best time to invest is today. It is better to be in the market, even with a tiny amount, than to not be in the market at all.
Finding a side hustle is also a great way to pay down your student loans. Start a side hustle today using these two articles:
If student loans are the way you get to your dream job, you have an obligation to take those loans.
You can be rich and have student loans.
Student loans can be a catalyst to help you reach FI or can be a burden preventing you from reach FI