If you’re thinking about taking out student loans for the upcoming school year, read this before you do it. Every time I see my student loan statement, I cringe and say to myself, “Well, at least I took that really useful managerial economics class”. But seriously, if you need to take out the loans, make sure that you only take out enough to pay the tuition. Don’t take out the full amount to live on. You’ll thank yourself later if you take out enough to pay the tuition and then get a part-time job to pay for rent and food. So here are my seven reasons why student loans are the devil:
- Student loans will never go away unless you die. If you file for a Chapter 7 bankruptcy, they are one of the only unsecured debt that DOES NOT get wiped off your credit history.
- Government student loans seldom charge late fees, but then they will send you a letter a year later saying that you don’t qualify for the reduced interest rate because you didn’t pay every bill exactly on time….oops.
- The interest rate is now as high as a mortgage interest rate. When I consolidated my loans, I locked in 2.5% interest, but my wife’s graduate loans will be locked in at something like 6.5%. I love how the government decides to take money from the poor twenty-somethings when they can’t find enough money to justify their 400 billion dollar military budget.
- They are named after a bunch of grandmothers. Who is this Sallie Mae, anyway?
- All student loans should be subsidized. The government needs to get rid of unsubsidized loans that accumulate interest while you are in school. Students shouldn’t be penalized for being broke while in school and not have a means to pay the interest while in school.
- They take forever for many people to pay off. This DOESN’T have to be the case. You can eliminate student loan debt if you attack it aggressively. If you start paying $1,000 a month, you’ll see the loan go away in 2 years rather than 20.
- The government controls most of them. This always scares me, because the government never manages anything right. All student loans should be privatized and let the private companies compete over interest rates. This would allow the rate to consistently stay low rather than just jumping from 2 to 6 points in a matter of 2 years.
The bottom line is, avoid them as much as possible. They will feel like your roommate when you leave school and are living on your own. It is becoming so common for students to leave school with $50,000 plus in loans that it feels more like a mortgage! Except the only return on investment is the job you get, which sometimes isn’t enough to cover your rent and your second rent payment…I mean, your student loan. Again, my advice is to take out the minimum you need for tuition and pay the rest of your way through school by waiting tables or delivering pizza. You’ll cut your bill in half when you’re paying it back 5 years from now.