College is a big stop on the road of life. While following a dream is one outcome, a major reason many choose their destination is to increase future earning power. This kind of journey requires you spend money to make money, but there is a vast difference in types of debt one can incur. Choosing good debt over bad is one of the best early lessons a student can learn.
Over the past decade, tuition costs have increased 60 percent, and makes paying for a college education a daunting endeavor. Though mapping out a way to pay for college can be hair-raising, choosing to not make the stopover may be the worst wrong turn you can make. On average, according to the College Board, a college graduate will earn more than $1 million more in a lifetime than someone with simply a high school diploma.
Not All Debt is Bad
Education debt, like student loans, can be good debt, if thought is put into how much is borrowed, and students work hard toward good transcripts and degrees that provide competitive enough salaries to pay back the loans. Before incurring huge loan debt, check into the kind of salary and education requirements needed for your prospective career. The Department of Labor has detailed salary and career information at the Occupational Outlook Handbook at http://www.bls.gov/oco/. Also, websites like CareerBuilder.com show current competitive info.
The best time to plan college payment is before a school choice is made. Use the calculators and resources at your selected schools’ websites, or at focused sites like FinAid.org to decide how much student debt you will need and can manage. These calculators prompt you for all costs incurred during college—not just tuition—and show how much financed loans will cost by graduation day.
A recent New York Times story described the surge in private student loans, and how private companies made unfavorable loans to students. While these private loans carried variable rates as high as 20 percent, federal loans are capped by law at 6.8 percent. Regardless of the type of loan used, the important thing is to read and understand all terms and any possible changes in interest rates.
And while credit cards are usually painted as the villain, they can be beneficial if used responsibly, and students pay off debt each month. In using this type of revolving credit, building a good FICO score with timely payments and not accruing high balances, undergrads can leave college with the ability to buy a car and borrow money at good interest rates.
But Bad is Bad
Borrowing to party, however, is bad in any credit scenario. Every time a college student uses credit cards to eat out or buy the latest video game and cell phone, it may mean life-after-college is restricted by high debt and long-term payments. Not all cards are created equal, with annual fees ranging from zero to $50 a year, and interest rates for college students usually run above the 20 percent level.
Credit cards and student loans aren’t free money, and how you handle them will affect your future. As soon as you begin using credit, a report of your borrowing and payment history is set up and tracked. How you pay will determine whether landlords later rent to you. It will make the difference in what kind of insurance rates you pay. And if you apply to a company who looks at your credit history as part of the hiring process, it can mean the difference between gaining and losing this particular job opportunity. |
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