Not Made Of Money

College loan debt is a huge problem for many people. The following guest post by TJ Hanson of GoCollege.com provides some ideas on how to manage college loan debt.

A college degree is a very admirable goal. But in recent weeks there have been a number of articles detailing an extremely alarming trend.

All too often, students are taking on unmanageable, future debt loads as they pursue their dream of a college degree. The end result is that while earning that all-important diploma too many students are mortgaging their entire future.

To be sure that their college degree will in fact better their future, students must understand some key financial basics.

Understand Good Debt vs. Bad Debt

Students should understand that there are two forms of debt, good debt and bad debt. An example of a good debt involves the purchase of a home. Such a purchase has the potential to increase in value over time.

A loan for college is also considered good debt as it is an investment in your future. Armed with a college degree, students will have the potential for a better job and greater earnings.

Two basic examples of bad debt are credit card debt and a car loan. Both debts will cost you more than the original article was worth and these items will not appreciate over time. Making matters worse, they also generally carry much higher interest rates – therefore, a greater portion of your payment will go towards interest and far less towards principal.

Minimize All Debt

First and foremost, while in school a student should not accrue any bad debt. If you use a credit card to purchase an item, then pay that credit card off immediately. Paying only the minimum amount required is terrible practice – your bad debt will only grow.

At the same time, be sure to minimize your good debt. In much the same manner as one’s ability to pay limits what a person can borrow to purchase a home, the same should be true for borrowing for school. Students must carefully weigh the amount they will borrow for school versus what they can routinely expect to be able to pay back in the future.

Apply for Federal Aid and Scholarships

It is imperative that every student realize that the vast majority of individuals would not be able to attend college without some financial assistance. Amazingly, large numbers of needy students do not even apply for the cheapest form of aid.

To obtain the less-expensive federal support, borrowers must first file the Free Application for Federal Student Aid, or FAFSA form. The fact of the matter is you get financial aid only when you apply for it.

No doubt about it, the FAFSA form is a major pain. It is lengthy and in-depth so it will take tons of time to gather all of the important data needed to fill the form out properly. But the FAFSA is your ticket to scholarships, grants, and the lowest-interest loans available.

Most importantly, do not consider any private, higher-interest-rate loans until you have exhausted the federal funds available. The key issue in regards to borrowing for school is that if you are not careful, you can accrue college loan debt that will cripple your entire financial future. Earning a college degree does create the potential for greater future earnings but every student needs to understand that there are limits to what he or she can reasonably pay back.

Create a monthly Budget

To ensure you live within your means, construct a monthly budget for all expenses beyond tuition and your room and board. Plan how much you will spend for the month and what you will spend that money on. More importantly, once you have planned out a budget, keep track of your expenses to see if you are spending according to your budgetary plan.

If not, you should adjust accordingly – you may legitimately need to add some dollars to one area because it does cost more than you expected. When you adjust an area upwards, you have two basic options. The first is to reduce your expenses in another area. The other is to earn more spending money.

Work While in School

First, find some form of employment for the summer months. Work as much as you can and save as much as is possible. If you have to, mow lawns or work as a waitress. Make it a goal to earn enough money, at a minimum, to pay for a portion of your room and board expenses and the cost of textbooks. It would be even better to set higher goals so as to ensure you minimize what you need to borrow while attending school.

Moreover, the simplest way to ensure that you both keep from accruing bad debt during your school years and accumulating too much good debt is to work even while attending school. Working as little as seven hours a week, or one hour per day, can create as much as $50.00 worth of income every week.

Such money will certainly be enough for all the clothing and personal items you truly need. It will even give you a decent sum for a night out or that occasional pizza. With a little effort you can incorporate your basic school supplies into the mix, including saving a few dollars to pay for your books for next semester.

The Value of a College Degree

There is little debate that earning a college degree is a step towards better career options and compensation. But today, far too many students are accumulating so much debt during the process that they never see the benefits of higher wages.

Instead, those funds and a great deal more end up simply going to pay off the debt the student accumulated while in school. In such instances, the accrued debt can actually render a college degree a net negative.

Author Info: TJ Hanson, GoCollege.com (http://www.gocollege.com/). The Digital Student Blog (http://www.blog.gocollege.com/)

Mrs. NMOM’s note: Mr. NMOM and I were both able to get through college debt free. How did we do it? We each lived at home while attending college, worked a variety of jobs while going to college, and went to community colleges for the first 2 years then transferred to universities to finish the degrees. After graduating from college and going to work full time, we each utilized our employers’ tuition reimbursement programs for higher level studies. The funny thing is, we did not know each other during our college years. Mr. NMOM was in the Midwest and I was in the South and our paths did not cross until many years after college.

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