How often would it be that incomes and savings would be sufficient to pay for all our education? The answer is – it is rare, especially, if you are thinking of higher education in the United States. There are many unplanned and unforeseen living costs that arise while earning a graduate or undergraduate degree other than the ever increasing tuition fee, expensive books and living cost. What is the solution then?
One solution that has been in place since 1950s is the concept of ‘student loans’. A student loan is specifically designed for students to pay for their education expenses and carry substantially lower interest rates and suitable repayment schedules to help students pay them back when they are capable of. Student loans are different from scholarships and grants and are supposed to be paid off. In the US economy , government started offering student loans in 1950s under the National Defence Education Act.
The Higher Education Act of 1965 further helped to broaden the scope of student loans. Student loans are now, an eminent feature of the US society with an average debt of about $23,000 per student. Student loans can be of two types- Federal student loans and Private student loans. Federal student loans are funded by the federal government. Interest rates on a federal loan are fixed and in some cases, tax deductible. Other than government agencies; banks and finance companies also offer student loans. Interest rates on private student loans are generally variable and higher than federal student loans. While federal student loan programs follow the guidelines laid down by the federal government; terms and conditions on a private student loan differ with different lenders. Some of the Private Student Loans servicing giants are Sallie Mae, New York HESC and WellsFargo.
It is widely believed that the benefits that come with a college degree generally outweigh the cost of earning one. It basically means that people thinking of living a good lifestyle in future would not shy away from taking out a student loan. However, there is little truth left to this argument in the current financial scenario. According to a study by Jiason Abel and Richard Deitz, students now fail to realize that wages are dropping down for everybody with no consideration to the level of education. This does not undermine the importance of a college degree but forces an individual to do some serious cost- benefit analysis before availing a student loan. Student loans undoubtedly act as a breather with the prevalence of high education cost but in reality, they are a financial liability that needs to be paid off in future. And we all know that student debts are not as easy to pay off as it is to avail them.
Student debts contain within themselves financial difficulties during repayment. It is hence said that a student must look for all available options other than student debt to pay for his/ her college education expenses. There can be multiple ways by which an individual can think of paying for his/ her college degree. Some of them are as follows:
Measures to avoid student debt
- Start saving as early as possible: Some savings are always better than no savings. While a good amount of savings can act as an alterative to student loans, even a small amount of the same can at least reduce the amount of student debt and lessen the financial burden.
- Scholarships: Scholarships can pay a big part of your educational expenses and help you lessen or even do away with the idea of student loans. While this option might not be available to everyone, but should be definitely used if available. Scholarships not only mean exceptional academic scores, rather there are scholarships on the basis of excellence in sports or other co- curricular activities, social work or overall performance as a student.
- Intern or work part- time: It is indeed difficult to manage work and studies simultaneously. But as they say, ‘No Pain, No Gain’; working part time or interning during graduation can help an individual manage his finances more efficiently, sponsor one’s tuition fee and in some cases, save some amount of the salary.
- Investments: One can increase the value of petty savings by way of investments and use the inflated funds for his/ her education. While it would be too much to expect investment decisions like those of Warren Buffet from an undergraduate or a fresher, one can definitely go for small investments that involve less risk. Investments in government bonds and shares can be an effective source of investment for such cases.
- Low cost of living: It is difficult to cut down on the cost of books and college fee but the living cost can still be kept least by the student to ensure zero or very little student debt.
- Borrowing from family and friends: An alternative to meet expenditure on college education is to borrow from friends and family instead of going for student loans. This can be advantageous in two ways; the borrower can expect interest rates to be lower and the repayment schedule can be negotiated as per individual needs and circumstances.
If any of the afore mentioned methods seem infeasible to the student and there is a strict need to take out a student loan, it is advised that the students must prefer federal student loans above private loans due to various reasons. One major reason is the availability of student loan forgiveness plans on such loans that allow for the forgiveness or discharge of student loans under certain circumstances. Such forgiveness plans are also available for private student loans but the terms and conditions highly depend on the private lender in that case.
Student loans are not the only solution to high college education expenditures. As mentioned above, there can be various other means to pay for such expenditure without incurring a student debt. Student debt might seem to be a quick solution to such heavy expenditures, but what generally misses the eye of the borrower is the financial burden that follows such loans once the student is out of college. The alternatives to student debt might seem difficult and require hard work, but indeed they spread the financial burden instead of accumulating them for after- college life as in the case of student debt. It is thus important for a student to look for all options before taking out a student loan to pay for his educational expenses.