Financial expert Dave Ramsey recently posted some poignant thoughts about paying for college expenses with student loans. He remarked that these days many people think you can’t be a student without a student loan. It’s easy to get a federal student loan or go to the local bank to finance your education, BUT, he pointed out, doing so hurts both you and the economy in the long run.
How? He went on to explain that people are borrowing more than ever before. In 2001, $4 billion student loans were taken out, while recently that number jumped to $17 billion. Though it may in part be due to higher tuition costs, Dave maintains that more than likely a lot of it is due to lifestyle choices. Rather than live in a dorm and eat campus food or even live at home, students would rather rent the off-campus apartment, order take-out, and drive a new car. If you’re not making any money, you shouldn’t be spending any money. Look at it this way: If you borrow $47,000 for a student loan at a 5% interest rate, the payments will be about $500 over to years. After 10 years of interest, you’ve actually spent almost $60,000. If instead, you had invested that money in a good growth-stock mutual fund averaging 12% interest, after 10 years you would have saved $115,000! Which sounds better?
Dave explains that borrowing so much hurts the economy as well. More debt means less money invested. If money isn’t invested, the economy doesn’t grow as well. More debt also means less money to outright buy things, which leads to more financing to buy things, which turns into a vicious cycle.
Before you strap yourself to a student loan, look at all your options. You can apply for scholarships and grants, work part-time, save your money, or go to a cheaper school (see our How to Pay for College post here: http://tryhigher.com/?p=892). It’s not worth starting out behind the eight-ball as a new graduate, especially in this economy. Get creative! If you are paying on a student loan, get on a budget, and work hard to start paying it off quickly. The sooner you pay it off, the more money you’ll save in interest. Make sacrifices if you have to. As Dave says, “Live like no one else, so that later, you can live like no one else.”
Ramsey, Dave. “Student Loan Backlash.” daveramsey.com. Aug. 27, 2009.