Why Are You Taking Out Student Loans?

by Derek

All the parents in the world seem to have the same advice, “Go to school, get good grades, and get a safe, secure job.” That is their definition of success, and do you know why? Because it’s what their parents instilled in them! Our parents and grandparents saw how limited their options became later in life, all because they did not have that piece of paper from a college institution.

Road To Solvency
Any More Advice?

For whatever reason, the parental advice seems to stop there. In my mind, I had plenty of other questions as a teenager leaving the walls of high school and venturing into this unknown called college. For instance, “How do I handle my finances now that I’m out on my own?” Or, “Are my study tactics from high school going to be good enough for college?” Most importantly though, our young high school grads are often asking the question, “Is it ok for me to take out all of these student loans? Will I be able to pay these back easily once I find a job?”

When it comes to student loans, many parents do not have the money to fund their children fully through college, and since their kids don’t hardly make any money and have nothing saved up, the only option available is student loans. Throughout their college career, students are borrowing $10,000, $20,000, and sometimes $50,000 or more to fund their schooling! The average graduate owes $25,000 in student loans and most likely doesn’t have a way to pay for it. After all, there is absolutely no guarantee of a job, even if you do have that magical piece of paper.

The Reality

Did you know that 20% of the bankruptcies today are filed by kids that are under 25 years of age?! More often than not, it’s the same story: they went to college without having any money to pay for it, survived with a few credit cards for a while, but then simply ran out of borrowed money. Before they realized it, they had $40,000 in student loan debt and $30,000 in credit card debt and were forced to start paying it back. Well, a $900 payment each month is pretty tough considering they still only make $12 at their part-time job. Bankruptcy seems like the only way out.

I beg you not to become one these bankruptcy cases. It just doesn’t have to be like this! Believe it or not, college CAN be paid with cash. It takes careful planning, and perhaps you’ll even have to take a few months off from school to save up some more money, but it is possible. Just think about what you could do if you graduated with your degree and found a job that paid $45,000 per year, and you have absolutely no debt! Immediately, you’d begin to fund your retirement accounts, you could make a massive down-payment on a house, and you’d build up your savings to the point where you’d never feel stressed about money ever again! Wouldn’t that be nice? Let me tell you, it is possible!

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Money Beagle May 9, 2012 at 6:43 am

I don’t think student loans are the problem. I think there are two indirect problems: First, taking student loans out on non-education costs. I know people who take loans out to pay for meal plans or to pay for ‘living expenses’ like clothing and entertainment during college. This is trouble. If students looked to taking out loans only for the ‘classroom’ costs, they would likely be manageable. Second problem is not working or staying at home. Many will look at my statement above and say that it’s impossible to go to college and pay for everything else but education in ‘cash’. No, it’s not. You can work to make money to pay for room and board. Or hopefully parents saved up for that portion. If not, go to community college and/or a commuter college to avoid those costs altogether.

Derek May 9, 2012 at 3:46 pm

I love your comment MB! I agree 100%.

krantcents May 9, 2012 at 7:55 am

When did the advice become “Go to school, get good grades, and get a safe, secure job?” My advice was go get a good job! I think it is more a sign of the times.

Derek May 9, 2012 at 3:47 pm

Lol. Yep, the times have changed! Now it almost a requirement to go to college. If you don’t, you’re written off as a failure immediately…unfortunately.

Frugal Portland May 9, 2012 at 12:36 pm

I feel like student loans are a logical step. If college, then loans. What other options do high school grads have?

Derek May 9, 2012 at 3:49 pm

I am a believer in paying for college with cash. It’s not easy, but I know it can be done.

From Shopping to Saving May 10, 2012 at 7:39 am

I plan to take out loans for law school. For one, I do not have the money, and two, it’s my always been my dream. I have done all of the research, calculated my monthly payments when I graduate, and can confidently say that I am okay with it. I will not take out more than I need and I plan to live as frugally as I can. I will also be living at home to save money on rent and food. I do not have any debt from obtaining my undergrad degree, and a higher education is expensive.

Derek May 18, 2012 at 4:20 am

It sounds like you’re more responsible than most, but just make sure that you have a back-up plan to pay that debt in the event you don’t get your dream job! Many times, people go back to their minimum wage job after college and can’t survive while paying their loans!

Jai Catalano May 10, 2012 at 5:24 pm

Ironically more and more people are getting degrees that are no longer holding the weight they used to. Eventually people might have to find there own way and ditch the importance of a degree. I didn’t say ditch school… I said the degree.

Derek May 14, 2012 at 4:44 am

That might be an option, but that degree is really important these days. All employers look for that degree! The only way out of it would be to start your own business.

Cil Burke May 10, 2012 at 6:31 pm

There are many ways to avoid massive student loan debt. You are right. This is all a giant mess.

Derek May 18, 2012 at 4:20 am

It sure is! I intend to make a difference in this area though.

John | Married (with Debt) May 11, 2012 at 7:15 am

Sad to hear so many bankruptcies for young people. There needs to be stronger financial education in high school rather than the rah-rah do whatever you have to do to get by.

Derek May 14, 2012 at 4:46 am

Yep, you are right! I intend to be one of those people that are informing the high schoolers of college costs and the hardships of too many student loans.

SB @ One Cent At A Time May 14, 2012 at 4:40 am

We hear a lot of stories about finishing college without loan, how is that possible? Does scholarship cover entire education/tuition?

Derek May 14, 2012 at 4:46 am

It’s entirely possible! It’ called scholarships, working during school, and full-time work in the summer. Oh, and no spring break trips on credit….

Jason May 14, 2012 at 6:35 pm

This is a timely post as I just had a conversation with my wife about saving for our children’s education. I think it’s every parent’s responsibility to help their children avoid school debt. I love the idea of taking some time to save and work to go to school without loans. I know many friends who sacrificed by living at home and going to community college before big universities. My wife worked all through college. I think we need to instill in our children (and set a good example) that it’s wise to avoid debt.

Derek May 18, 2012 at 4:22 am

Sounds like you’re right on the mark Jason. I wouldn’t set up a fund that will pay for 100% of their schooling if I were you. Make sure that they work during college. It will give them a better idea of what the real world is like.

ImpulseSave May 17, 2012 at 10:40 am

I agree that it is a problem to go too much in debt with no back-up plan in with unnecessary debt piled in. For example, as one of your commenters said, talking out loans to cover meal plans or entertainment in college. Not a chance for me: I took out loans for tuition and fees only. Any extra money came out of my savings from summer jobs and high school jobs, and I even worked on the side while in school. Not that hard. And when money is tight – do without! You’re in college: you can always find something fun to do on-campus that costs you nothing.

Also, taking out car loans or building up credit card debt is a huge no-no. I have always ALWAYS paid off my credit card in full each month. I don’t buy anything I don’t have the cash to cover right away. All of my debt is just student debt. Car loans are crazy, too.. Who needs a new or even expensive used car in college? Buy your grandparent’s old car, get that old one in the paper for $300 – learn to live with a set of wheels rather than a new Chevy.

Derek May 18, 2012 at 4:24 am

Sounds like you’ve got a lot of wisdom ImplulseSave. Thanks for the comment!

Paul @ The Frugal Toad May 17, 2012 at 10:56 pm

I put myself through college and financed it with a combination of financial aid and student loans. It was a great investment for me, however many college grads today are finding out the hard way you have to carefully choose a major in a field that has good employment prospects. The fact that I had a great internship experience was crucial in me landing the job that I wanted.

Derek May 18, 2012 at 4:24 am

Yep. That piece of paper doesn’t really mean anything today, unless you have a couple of years experience to go along with it.

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