Financial Aid can seem like a life saver if you don’t have the money to pay for your college expenses. But far too often it acts like a small Band-Aid on a massive, bleeding wound. It may help in the short-term, with the hope that the wound will heal itself; but eventually the Band-Aid becomes an obstacle to the healing process and causes an even more serious infection – one that takes a lot of work and a long time to heal. Use any analogy you like, but I like this one because student loan debt infects future savings, buying power, and investments.
Talk to people who have taken out Financial Aid or private student loans. Ask them if their student loan debt has impacted their credit score, ability to save for retirement, or their plans to purchase a home or vehicle. Our addiction to federal and private student loans has caused a traumatic impact to our savings. It’s an addiction because it’s a quick reward, with long-term consequences. As with any addiction, we just don’t like to think of the long-term consequences, especially when money is involved.
If you do apply for federal loans, take out as little as possible and ensure the loans are subsidized. Never take out private loans. Set a limit for your federal loans, and don’t exceed that limit! Develop a plan prior to graduation for paying off all debt – as an example, tell all of your friends and family to give you cash for birthday and holiday gifts, save all that money, and then apply it to paying back your loans immediately after graduation. Other ideas for developing a pay-back plan include working part-time while in college, living at home, applying for scholarships (big and small), and budgeting (setting limits on how much you spend on food, gas, entertainment, clothes, gadgets, etc.).
Taking combined actions, such as those just mentioned, will help prevent the future-you from paying sizable school loan bills later in life. You’ll have less stress and will be able to invest for your retirement sooner, and you’ll be able to make big purchases (such as a house or car) without feeling trapped under the weight of unneeded debt.
You can’t afford to assume that you’ll land a high paying job immediately out of college. You may not even get a high-paying job within five or ten years after college, so plan ahead and borrow as little as possible. Is it too much to say, “Don’t borrow for college!”? Well, there I said it…don’t take out a lot of loans…if at all possible.