College loan question.?

Question

Im in the middle of my third year in college. I have only taken 750$ out in laons so far. I recently switched from living off campus to living in an apartment. My dad and me had worked out this plan of only oweing 1500$ after I graduated. But Im barely makeing it buy trying to work 2 full time jobs during the summer and one during the school year. I just want to releax for my last year in school since Im going to be working the rest of my life. So the finacil aide person said I was elligible to take out a 2200$ loan. I told my dad I was thinking about takeing it and he fliped out. He kept saying that I was gonna get screwed over and be thouasands of dollars in debt. I dont understand cause that would mean I took out 3000$ instead of 1500$ in loans while all my other peers are in debt up to 30 or 40,000$. So what does everyone else think? Should I take out the 2200$ loan so I dont have to work my senior year and have fun or tuff it out for another year?

Answer 1

It sounds like your Dad is trying to teach you the value of hard work and might be a little distrustful of the student loan system (or creditors in general).

Some of his fears are warranted: a lot of students don't understand how interest affects their overall indebtedness and can't fathom how harmful it is to default on a student loan. In fact, most of the graduating students I speak to couldn't even tell me how much they owe. They haven't thought ahead and usually assume that everything will fall into place without much effort on their part.

It doesn't sound like you are one of those students. Your father is obviously not completely distrustful of you, since he did consent to your borrowing $1,500. So, here are a few things to ask yourself before you decide what to do:

1. What is the likelihood that you will, upon graduation, resort to other kinds of borrowing? Do you envision getting/using a credit card more when you leave school? If so, consider that some kinds of debt are worse than others and it might be nice to take advantage of the "better" types of debt while you can. Student loans are, in general, more attractive than other types of credit. If you graduate with no debt but then rack up $3,000 in credit card debt, you're much worse off than if you had $3,000 in student loan debt and $0 in credit card debt. Student loan interest is tax deductible and, if you fall on hard times, your loans can be placed in deferment or forbearance while you get back on your feet. Additionally, if you enter certain career fields (particularly teaching) your loans might be able to be forgiven.

2. What concerns you more: the overall cost of the loan or the monthly cost (affordability)? Frankly, your monthly payment on $1,500 would be exactly the same as your monthly payment on $3,000 ($50). If you borrow $1,500 at 6.8% and pay the monthly $50 minimum, you can have the loan paid off in 33 months. If you borrow $3,000 at 6.8% and pay the $50 minimum, it will take *74* months to pay back because of the interest that will have accrued. At the end of the 74 months, you'll have paid more than 4x the interest that you would have paid on the $1,500 loan. (Interest is lousy, isn't it?)

3. Are you responsible enough to know when to stop? If you find that you don't need all of the $2,200, do you have the discipline to either invest the remainder or return the money to the lender? Sometimes borrowing can be a slippery slope. Many students might see how simple it was to get the $2,200, use it all up, and then request more. This is how you could (as your dad puts it) "get screwed." Remember: your decision doesn't have to be between $2,200 and $0. What about borrowing an extra $1,000 and working 1 job instead of 2? If the loan is unsubsidized, you could use a few dollars of your earnings to pay the accrued interest so that the $1,000 that you borrow today is still $1,000 when you leave school. Or, as I mentioned, you could put the remainder in a high-yield savings account. (I bet THAT would alleviate some of your Dad's concerns about fiscal responsibility!)

Finally, you're right that your potential $3,000 debt load would be considerably smaller than your friends'. In fact, the average undergraduate student leaves school with more than $19,000 in debt, so your $50 monthly payment is just about as good as it gets. Yes, learning how to manage money is a very important skill -- but if struggling staying debt-free has taken a toll on your studies, it might be time to consider getting a little bit of extra loan help.

Answer 2

The difference between $1500 and $3000 is paying $50/month for 33 months or 74, so it's more than double.
I would try to understand why your dad thinks the way that he does. Is he good with money, i.e. compare what he earns to what he has saved? If he only makes around $40k, but has a half-million in retirement and paid for house, then he's pretty good, and is a person to listen to. If he makes $100k and is up to his eyeballs in debt, then perhaps he's trying to save you from his mistakes. Maybe he knows that 5 years from now, you're going to be talking to your friends and some are going to be talking about buying a house and others about trying to pay off their student loans, credit card, car payment, etc. I know, because I'm 26 and in the second group. Borrowing now to have fun and take it easy is likely to teach you that it's ok to borrow to have fun and take it easy. That may be what the banks (lenders) teach, but at some point when you're paying it back, you'll be thinking that it's not fun and easy.
On the other hand, compared to your peers, $3,000 is nothing. If you are struggling with classes and grades because of working during the semester, then take the loan. If your can get a 3.1 gpa instead of a 2.9, then the $1,500 was a great investment, because I would suspect that your first job with a 3.1 would pay more than $1,500 a year more than the job you can get with a 2.9. If you're going to be able to do an internship, or a research project because you're not working as much, then take the loan. 6.8% is a high rate to pay to have fun, but if it's going to make you more employable, then take it.
I'm sorry there isn't a clear-cut answer, but hopefully you can better decide for yourself.

Answer 3

The point I think your dad is trying to make is that he doesn't want you to get into the habit of borrowing to make your life easier. It sounds like he has helped you a lot w/school. That means he probably has some wisdom when it comes to money. I think you should try to suck up & get by w/o borrowing. You have done well so far. It sounds like he is just trying to make you see that debt is not an answer to any question worth asking. Eat lots of Ramen noodles, sell some of your junk that is boxed away since you went to college or whatever. We are only talking about $1500...you could probably make that panhandling, though I'm not advocating that in particular. DH & I were $100k in the hole for college (multiple degrees b/t us). It has taken us nearly 7yrs to dig (mostly) out of that hole. I'm glad that you have not gotten that far in, but I am gonna side w/your Daddy on this one. Suck up & avoid taking anymore debt..ever! You will be thanking him when he is old & gray for teaching you to live on less than you make. I wish someone had taught me that sooner. I learned it the HARD way.

Answer 4

Graduating from college with a degree and owing only $3,000 is outstanding and seldom attainable unless the student has wealthy parents. Government loans, subsidized and unsubsidized loan interest rates are low and affordable, but watch out for private loans, the interest is much higher. Speak to your financial aide adviser and ask about the available loans and interest rates. Possibly, your father doesn't know about rates and repayment options. Good luck, study hard, I think you've earned a bit of a break.

Answer 5

the non-public personal loan will in many situations require you to start up paying it back on the on the spot. the college personal loan will in many situations have a application the position you could defer funds until eventually 6 months when you graduate...or settle on to leave college. i might want to point going with the pupil personal loan, so that you have not any funds to fret about until eventually you could fairly pay them! :-) That way your credit status is secure

Answer 6

I say take the loan. You are the one responsible for paying it back, not your dad. And hopefully once you graduate you will get a great career and be able to afford the low monthly payments.Good luck.