College-Debate

The Blessing
Once upon a time, possibly a long time ago, student loans were simple and their interest rates were lower than that of average loans. Banks and the Federal government worked together to give students a break. And, to qualify, a student needed a decent GPA and career outlook. Future teachers, for instance, found it easy to get loans. They were in demand and knew loan payback, although likely to take10 years, would eventually end. And that the interest rate would stay the same.

The Curse
Enter the loan dragon. Somebody figured out that some kinds of students, perhaps with lower GPAs or less optimistic job outlooks, were not qualifying for government loans. Some of these dragons could have been good hearted—“Let’s help those slightly below GPA students” while others may have thought, “Golly gee whiz, perhaps these kids will pay a lot for a loan because they don’t have any other way to finish school. And, if they don’t pay, we know where they live.” And, wow!, with all that interest to be earned, we can probably market these loans to investors!

This may sound a bit harsh, but we’ve all seen Enron and we’ve all seen the real estate market boom and bust. Why not the student loan business?

At rates somewhat below hard-to-get credit card rates, non-government loans became available. And somewhere along the line, the rates started to look like credit card games: 0% financing until 200X!” And then, boom, gotcha! 17% interest! In case your background isn’t in finance, 17% is a heck of a lot of payback for a student who, upon graduation, starts out near the bottom of the pay scale. Instead of 10 years to pay off, it’s looking like a chunk of one’s lifetime. Take a look at how student loans relate to the financial crisis in the US: washingtonpost.com – Student Loan Aid Is Test for Treasury.

So, when it is a right time to get a student loan that isn’t government supported? Harshly speaking, only when you use the loan $$ for school expenses. What never to pay with a student loan: car expenses, dinners out, beer nights with friends, weekends away, new electronic must-haves. Sorry to say, but these kinds of purchases are best made with money from a part-time job or other non-loan money source.

Once school costs get expanded to include lifestyle costs, doom and gloom are only a distance away. Do you really want to pay 300% more for that new cell phone just so you can have it this month? Because, 300% of purchase price is what is may cost you to pay off the loan amount you used to purchase it.

The Choice
Here are some questions you should ask yourself when thinking about a non-government student loan:

1. How much will it REALLY cost you to pay off this loan? How long will it take, given a realistic salary and job outlook? (Find a counselor or banker to help you with this one. Do NOT base your decision solely on what the loan agent is telling you.)
2. How bad do you need it? Is it realistic to consider taking fewer classes so that a part-time job works for you? Or even a full-time job combined with night classes?
3. Are there scholarships you can qualify for? Does the career you are planning for offer any financial aid?
4. Do you have friends or relatives who might combine money for a loan, as long as it is drawn up by an attorney and signed by all.

Whatever you do, research any loan carefully, get a second or third opinion, and think it over before you commit to such a loan. Worst-case scenario: Age 32, working second job to pay more on loan, up all night with sick young child.

Think it over.