Anytime a conversation turns to student loans many people begin to offer their opinions. These opinions vary from, on one hand, the internet trolls and their comments on any article dealing with student loans, telling people to just pay their debt obligations, to the starving student who is stating they simply are trying obtain education to remain relevant in today’s workforce. I have found there are a couple of things everyone could benefit from in a discussion on student loans.
Schools Want Your Money
I know, I know, pretty basic right? But too often we see for-profit schools painted as the big bad wolf in the education sector, when the reality is all schools depend on your money to operate. They have a vested interest in you attending their school. This includes for-profit, trade, private and public schools. They all follow the lyrics in John Fogerty’s song “When you ask them how much should we give, they only answer more, more, more….”
College tuition rates have increased 80% over the last ten years, nearly more than double the rate of oft-complained medical care costs. This is a huge number and it becomes increasingly important to understand your role in the relationship as a student attending any university. An unfortunate reality is that tuition rates do not appear to be going down anytime in the near future and all signs points to continued tuition rate increases. So understand all schools have a vested financial interest in you attending their school and as a result many will bring out the red carpet trying to get you to attend their school and highlight the best they can potentially offer.
Now obviously it is in their best interest to provide the education necessary for your long term financial success as it helps bolster their reputation. It is not a complete hood-winked proposition they offer. This doesn’t make colleges/universities bad and they are certainly not the enemy in this situation. But it is important to gain an understanding that any potential school is counting on you to fund their operations. So you have to understand that you only have an obligation to you and your family first. While there will be many schools offering their services, remember they are most interested the money you bring to the school to pay for new buildings, faculty, and other ventures. Notice I didn’t put “hard-earned” in front of money as this leads me to my next point.
Most pay for Higher Education through Loans
Another mind-bender I am sure, but too often people attending college do not really understanding this simple concept. In order for universities to remain in compliance with federal regulations, Title IV funds must not account for more than 90% of their overall revenue. What does that mean? It means student loans can account for up to 89.9999% of overall revenue and a school can remain in federal compliance. So what do schools promote, they promote you taking out loans to fund your education as 90% can completely fund their education exclusively with loans. These loans offer attractive low monthly repayment options and typically don’t have to be paid while attending school. So too often, it becomes an out of sight, out of mind while attending your classes. This often has an adverse effect on student loan borrowers.
We all remember the boiling frog story. If you told most people the total debt of their degree upon completion, i.e. the total amount of loans they had accumulated to obtain their degree, most would do a great deal more of research before spending $57,500 to obtain a bachelor’s degree. But this happens as people continue to take out the maximum amount of funds on a regular basis. Often it is to pay for “today’s bills” and not worry about “tomorrow’s debt.” This reality is even easier to accept as these payments are deferred for possibly many years in the future and the total amount can often be forgotten.
For example, if a student’s tuition/books for two semesters come in around $8,500 but you are eligible to take out $12,500 and you are given the option to have the additional $4000 to pay for today’s “living expenses,” it becomes a difficult temptation. And if this happens each year over and over, pretty soon you are looking down at an aggregate loan total of over $50,000 in student loans. Then at the end you look down and say how did this even happen.
I completely understand this temptation is very real for hungry college kids and even more so for young families trying to attend school. The justification is very easy to make and they take as much as the federal loan program will allow to pay for today’s expenses and figure it will somehow work out in the future. But careful consideration must be taken and always account for the long-term nature of these loans. Keep this is mind, for every $10,000 taken out today in student loans will account for an approximate $120 monthly payment in the future.
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John Skiba, Esq.
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