by Eliana Alcivar
In this blog we like to explore notions about the good life. Exploring a concept sometimes takes examining not only what it is, but what it is not. So let’s talk about debt. I think most would agree that whatever is the good life, being knee-deep in debt is not a good way to achieve it.
College students are among the most at-risk groups for building up unmanageable debt. Students pursuing a degree can be very optimistic in terms of the increased money making potential that will follow once they graduate. What’s a little debt now, considering that after you graduate, you will become a millionaire? Well, it should go without saying that while optimism can be a healthy thing, it can lead to disaster when that mindset is applied to decisions about building up debt while being a student. Suffice to say that not everyone becomes a millionaire after they graduate.
But take that mindset and add in loose lending practices by credit card companies, and you have a recipe for financial disaster. What college student has not received in the mail offers by the bucket loads for credit cards offering unbelievably sweet introductory offers? Once those sweet deals expire, students find themselves in a considerably more sour state of affairs. Next thing they know, credit card companies begin raising interest rates seemingly without justification, and soon they are paying more in interest and fees than they ever thought possible when they first took advantage of that incredibly good deal of a credit card. Though it is good practice to carry at least one credit card that you use and pay off every month, for the most part, the best policy to take when faced with the temptation to open a credit card account in college is to make like Nancy Reagan and “Just Say No.”
Another way students end up building up vast amounts of debt is through student loans. Student loans to cover living expenses in addition to tuition tend to be very easy to get for all but the most credit-impaired of individuals. Those can also be bad news–especially since a few years back, a new law was passed making it so that you could not declare bankruptcy on student loans. Talk about harsh! Although the best advice remains to borrow as little as possible, the good news is that in July some new federal regulations went into effect, offering some significant relief for indebted graduates who find themselves unable to find a job that adequately covers their federal student loan payments. Some salient features of the program include (1) payment reduction for qualifying borrowers and (2) loan forgiveness after making payments for as few as 10 years for some–those employed in a public service capacity–and 25 years for all others. Click here to learn more about the “Income Based Reduction” program: http://www.ibrinfo.org/
The bottom line is that while it can be very tempting to take on debt while being a student, a better policy is to get a part time job; or if the money would have gone to entertainment expenses, cut down on those expenses and consider them a reward to be earned after you graduate and get a great job. Living within your means–that’s the good life. It may mean fewer lattes and movie nights in the short run, but in the long run, it will mean a lot less stress.
Great post! Especially since they’re making student loans harder and harder to get, many students are having trouble making ends meet. While I was in grad school, I was a teaching fellow and had a part-time job, just so I wouldn’t have to take out a loan. There are lots of opportunities to not go into debt, students just have to be willing to look.
I’ve worked full time for most of my undergraduate degree and will work again while I pursue a graduate degree, and it still was not enough to keep myself from accumulating overwhelming debt. The part in this post about credit cards is so true–it is easy to get suckered in. The magazine “Real Simple” recently had an essay prompt that asked the reader when it was when they first felt grown up. For me, that was last year at this time when I swallowed my pride and consolidated my debt. For any student or recent graduate experiencing debt, I cannot stress what a serious relief consolidation is.
Thanks for your sharing, both of you. You are not alone; your stories have been echoed countless times across the nation, and as you mention Emily, in these economically scary times, it’s not bound to stop happening anytime soon. Jenny, you mention how it made you feel to take that step to consolidate your debt. It reminds me of a related theme in the area of growing up: which is having the humility to accept that you’re in a pickle, and then (here’s the grown up part): doing something about it.