What is the “Right” Amount of Student Debt?

There are a large variety of opinions out there about how much an individual should take out in debt to fund their college education. Some have the mindset that debt is a terrible thing and should be avoided at all costs, including school loans. Others see school debt as completely necessary, and believe that the benefit of a college education outweighs the financial expense.

As much as we want someone to tell us what the right thing to do is, there is not one right, across the board answer. Each individual has to do a lot of self-reflection and decide what choices will get them to where they want to be and where their priorities lie. While there is not one “right” answer, this is a decision that should be thought through very thoroughly.

For those that are trying to decide whether school debt is something they want to take on and to what extent they do want to take it on, it is important to keep a couple things in mind.

There are big differences between taking out federal loans vs. private loans.

  • Most federal loans do not require you to make payments until after you graduate or drop below half time. Private loans may require you to make payments as soon as the loan is taken out.
  • Interest rates for federal loans are fixed, and tend to be much lower than private loans rates. Private loans rates also have the potential to change throughout the life of the loan.
  • If you qualify for a subsidized federal loan, the government will pay the interest that is earned during the time you are still in school.
  • Credit checks are not necessary for a federal loan, with the exception of a Plus loan.
  • There are some loan forgiveness policies for federal loans depending on the field you work in and a few other circumstances.
  • There is a lot of freedom with repayment plans when it comes to federal loans. Private loans do not always have that perk.

Once school debt is taken out, it is very difficult to get out of paying it.

  • Laws have become very strict making it extremely difficult to get your school debt wiped without paying it. It is possible to declare bankruptcy and get your student loans discharged, but you would have to prove undue hardship. Amongst many other things, proving undue hardship requires you to provide records and spreadsheets showing that you are unable to maintain a minimum standard of living. Very few people end up being able to get rid of student loans through this method.

Learn the impact of interest.

  • Unfortunately, interest is inevitable. If an individual only takes out federal unsubsidized loans that add up to $28,000, by the time that person graduates in four years, there will be close to $3,000, if not more, of interest that has already accumulated depending on the interest rates of each year. Make sure to thoroughly understand the impact of interest on each of the loans you are considering.

Research starting salaries in your field.

  • A starting salary should be factored in to the decision of taking out student debt. When you start college, graduation seems like such a distant thought, but you will quickly realize that it is closer than you anticipated. Those loan payments will not be able to be deferred forever, and your ability to make your payments on time will be directly correlated with the income you earn.

Make a plan prior to taking out debt. Don’t walk in blindly.

Questions you may want to ask yourself and potentially your parents are:

  • Are your parents helping you financially with school? If they take out Parent Plus loans, will your parents expect you to contribute to payments?
  • Do you have a time frame in which you would like your student loans paid off? If so, what are you going to do to make sure that is an achievable goal?
  • Are you interested in paying off any loan interest you accumulate during school as you go or would you rather let it grow throughout college and deal with it when you are required to start making payments?

Any type of debt should be carefully considered prior to taking it out. It can become a bigger burden than intended if you are not cautious. On the other hand, it can provide many opportunities for someone. Each person must make the best decision for themselves, but to do so, they need to have the necessary information and be prepared for the responsibility that is tied to their decision. If you would like to learn more about making a plan for your student loans, schedule an appointment with a NEXUS Coach today: https://ronblueinstitute.com/nexus-financial-discipleship-center/.

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