Borrowing Part II

The “Washington Monthly” just published an article regarding what happens to some ill informed students who get caught in the borrowing trap.  It’s worth repeating that not all student loans are the same.  While Federal loans come with low interest rates, private loans do not, and sometimes skyrocket into double digits.  It’s also worth stating that your college may not be upfront with you.  Here is what Stephen Burd says:

Each year, more than two million Americans enroll in for-profit colleges, also known as proprietary schools, and their popularity has only grown since the financial crisis. While traditional four-year colleges are struggling with dwindling student bodies and budget gaps, proprietary schools are reporting record enrollments as the newly unemployed try to retool their skills so they can wade back into the job market. Some of the largest for-profit chains say their numbers have doubled over the last year.

The students who are flocking to these schools are mostly poor and working class, and they rely heavily on student loans to cover tuition. According to a College Board analysis of Department of Education data, 60 percent of bachelor’s degree recipients at for-profit colleges graduate with $30,000 or more in student loans—one and a half times the percentage of those at traditional private colleges and three times more than those at four-year public colleges and universities. Similarly, those who earn two-year degrees from proprietary schools rack up nearly three times as much debt as those at community colleges, which serve a similar student population. Proprietary school students are also much more likely to take on private student loans, which, unlike their federal counterparts, are not guaranteed by the federal government, offer scant consumer protections, and tend to charge astronomical interest—in some cases as high as 20 percent.

Burd’s article can be found here.

Borrowing for College

Borrowing for College

There are many who are fortunate enough to receive full funding for their education.  However, for many of us our educational goals require filling in gaps with student loans.  Student loans can be a worthy investment if you borrow wisely.

Student loans are meant to aid those who cannot pay for college outright.  They provide the enormous opportunity to pursue your educational goals.  The key to using them properly is read the fine print before you sign on the dotted line.

Federal student loans come in three varieties: Perkins, Stafford, and PLUS.  Perkins loans are low-interest loans provided for low-income families.  Stafford loans are also federal loans.  They come in two varieties as well: subsidized and unsubsidized.  Subsidized loans are the best because it means that the government will pay the interest while you’re in school.  An unsubsidized loan accrues interest while you’re in school.  Finally, PLUS loans are funds that your parents may borrow for your education.  Be sure to take advantage of all the fiscal information that your financial aid office has before you accept your loan package.  Financial aid officers are well versed in the various types of loans, and will explain your package to you.

Loans are calculated using a variety of factors including the cost of tuition and room and board, and there are maximum amounts you may borrow depending on your classification-graduate or undergraduate.  It is important to calculate how much money you realistically need before borrowing.

While the idea of receiving a refund check sounds great, you must remember that unless your refund consists of excess scholarship and grant monies that refund is money you’ll have to pay back in the long run.  Is it worth a new pair of shoes if that style is going to cost you 6% interest on top of the original price you paid?  Imagine buying a pair of shoes that cost $200 in 2009.  At 6% interest those shoes will cost you $212 the following year.  $12 may seem like a small amount, but by the end of four years you will be paying on a $248 debt and probably no longer own the shoes you bought.  When you consider that the starting salaries for many new grads are in the high 20k to low 30k range, you’ll regret spending frivolously!  The lesson is to only borrow what you need.  For example, if you live at home, and are not paying rent, then only borrow what you need for tuition and books.

If used properly, student loans are a wise investment, and have helped many people move ahead in life.  Borrow what you need and say no to the rest.  Your financial future will thank you.

Family Support

Family Support

Sticking to an educational plan and properly managing one’s fiscal matters are two key factors in student success.  However, there is a third that is equally, and may be even more so, important than either planning or money.

Family Support has been shown to be an integral factor in student success.  Students who are the first in their families to attend college face a steep learning curve and adjustment period when stepping on campus.  They will encounter new expectations that are often not fully explained or may be written down in obscure places.  If a student’s family or community supports their college going endeavor then that encouragement has been shown to give students the boost in confidence they need to overcome obstacles.

Some families want to support their student’s collegiate dreams, but also hamper them with requirements that they work to support their families, help out with smaller children still at home, or convey that college is an expensive way to gain employment, and thus, a waste of time.  Students who have to manage these attitudes in addition to their new environment often do not perform as well as their peers.

The greatest gift you can give your child, spouse, or community member who is attending college is your support free from major worries at home.  A student who is free from distraction has a greater chance to focus on their demanding studies.  Although it may be an adjustment for all, it is best for everyone if previous home/community responsibilities are released from a student.  If the student is a working adult then the pressures of attending school and work will be need to be offset by having his or her family pick up some of the functions he or she performed prior to going back to school.  Otherwise the student may not only not graduate, but may eventually hold resentment toward those who at home.  Pursuing an education is one of the most rewarding endeavors on which one can embark.  Family and community members can do their part by wholeheartedly supporting their loved ones.

Plan Your Work and Work Your Plan

Higher education is not the same as primary or secondary education.  At this level everyone expect you to be an adult who is fully autonomous.  That means you are responsible for everything in your student handbook and syllabi.  These are contracts between you and the institution.  Read them carefully.  As an admissions officer, I have met many a student who is upset because they have a charge on their bill that an institution has stated it will charge, but yet the student was unaware.  You are responsible for checking into how well a school supports its students, how often faculty are available, what type of accreditation the school has, graduation rates, and many other aspects of college life.  Be sure to see the student life office and your advisor if you are unsure.  It is better to ask upfront than to find out down the line.

This story from Inside Higher Education epitomizes why it is important to do your homework: http://www.insidehighered.com/news/2009/09/22/gao

Now that you have decided where you want to go you should make a plan to graduate.  College is definitely a place where you can explore and learn new things, but the end goal is to graduate with letters behind your name.  Leaving college with student loan debt and no degree is wholly a difficult place in which to be.  Or what could be even worse is having the need to borrow extra loan money because you need to complete extra degree requirements.  Planning for your collegiate years can mean different things for different types of students, but there are essentials that can apply to anyone.  Ask yourself: will I need to work while I am in school, and if so will that hamper my progress; what exactly are my degree requirements; how often are my required classes offered; and do my classes meet on days and times that I can arrive on time and ready to work?

College is a marathon of endurance and stamina, and planning out each step of the way will keep you on track to graduate on time!