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What Every High School Student Should Know About Student Loans and College

There are many misconceptions about student loans and paying for school. A small misunderstanding could lead to a lifetime of regret.

Written By: Michael P. Lux, Esq.


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To many students, leaving for college is the realization of a dream. Starting school marks an entry into adulthood and the freedom that comes with it.

Sadly, many high school students are woefully unprepared for the significant financial decisions that await. High school seniors must make choices that will greatly influence their financial future.

The good news is that college can still be an excellent investment. However, it requires some planning and asking a few tough questions before making any decisions.

To ensure that college becomes a source of great memories rather than regrets, every high school student should know the following:

You will have to repay your student loans.

Student loan forgiveness is all over the news. Borrowers are desperate for help, and media outlets are happy to provide content that gives them hope.

To be clear, some forgiveness in the near future is highly likely.

However, if you are currently in college or about to head off to college, don’t make the mistake of assuming there will be any loan forgiveness.

The idea of loan cancellation has been debated for years. Only one party has shown any interest in debt cancellation, and their interest has been fleeting. They also don’t have a very good track record of accomplishing their goals.

If forgiveness happens one day, make it a pleasant surprise. Don’t make the mistake of betting your future on politicians delivering on a promise.

College isn’t always a good investment.

There was a time when any college degree meant a great employment outlook.

Unfortunately, a college degree no longer guarantees a desirable job. Making matters worse is the fact that many parents and guidance counselors are unaware of this fact.

Before committing to any school, a prospective student should know the following:

  • The graduation rate for their major
  • The percentage of people who find jobs in their field
  • The average starting salary for people in their major

Tools like the college scorecard make this exercise much easier.

The idea is to make sure that the degree pays off. If a large percentage of students don’t graduate or they can’t find jobs, the investment becomes very risky.

Sherpa Tip: Many for-profit colleges are notoriously bad investments. If the recruiter from your school pushes very hard to get you to attend, that should be a red flag.

Federal loans are much safer than private loans.

If you decide that borrowing is necessary to pay for school, you should probably select federal student loans.

Private lenders like to point out that private loans sometimes have lower interest rates. While this is a true statement, the federal perks almost always justify a higher interest rate.

For starters, federal student loans have income-driven repayment (IDR) plans. The idea behind these plans is that they help ensure student loan bills stay reasonably affordable. IDR is far from perfect, but it is a much better option for repayment than the far stricter private loan options.

Additionally, federal loans provide various paths to student loan forgiveness. If you end up working in public service or struggle to repay your loans, the forgiveness provisions can be a tremendous resource.

Student loan nightmares happen, but they are avoidable.

Many students look at student loans from an extreme perspective. Some students think it is ok to borrow whatever is necessary, regardless of the cost or their field of study. Other students desperately avoid any student loans.

In reality, student loans are a helpful tool, but only when used properly. If your field of study is a good investment, student loans can help you get to the classroom and enter the workforce sooner.

As an easy rule of thumb, I usually suggest students borrow no more than their expected starting salary. If you expect to earn $55,000 per year at gradation, running up a $100,000 tab is a horrible idea.

The amount you repay is much larger than the amount you borrow.

When borrowing, many students overlook the interest that accumulates during school.

Suppose a college freshman borrows a single $5,000 federal direct loan. The current interest rate on these loans is 4.99%, and they have a loan origination fee of 1.057%. By the time this borrower enters repayment, the loan will be well over $6,000.

In repayment, many borrowers are distressed to learn that some or all of their monthly payment goes towards interest instead of the principal balance of the loan.

Interest makes repayment an uphill battle, making a smaller loan balance significantly more expensive to eliminate.

Your peers may make horrible mistakes.

Many students make borrowing mistakes during college.

Some people borrow too much to pay for a degree that isn’t worth the debt. Others spend too much on housing or a spring break trip.

In finance, people often assume that if everyone else is doing it, it must be reasonable. Don’t fall into this trap.

Every year students make huge borrowing mistakes. They assume they will get a great job that is unlikely to happen. Some don’t even consider the consequences of their debt. Others believe the loans will be forgiven.

If you substitute the judgment of others for your own, it could take decades to undo the damage.

College is still a great opportunity, but extra planning is now required.

The point of this article is not doom and gloom, and it isn’t to suggest that people shouldn’t go to college.

College is still an excellent opportunity for many students. You don’t have to live in a tent during school and only eat ramen noodles.

Go to school. Have fun.

However, before you sign up for any student loans, take some time to do some planning. When you are a college graduate trying to pay your bills or buy a house, you will be glad you were careful with your student loan borrowing.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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