Consider Student Loan Debt Carefully - Memphis Daily News

VOL. 127 | NO. 22 | Thursday, February 02, 2012

Rays of Wisdom

Dana and Ray Brandon

By Ray and Dana Brandon

Updated 3:04PM

Ray?s Take Student loan debt in this country now totals over $920 billion; that out-distances total credit card debt by $120 billion. Even more alarmingly, this is a 10,000 percent increase in a mere 14 years. That?s a huge headwind for young people who are just starting to find their financial footing.

So, are student loans to be avoided? Not always, but they should be considered carefully and shopped for thoughtfully.

Keep in mind that college graduates earn an average of $1.3 million more over their lifetimes than those whose education ended with high school. However, most of that earning power comes later in life, not during the early years when loans must be repaid. Besides, that is an average, which means for many college grads that extra debt load may not pay off.

The decision to apply for student loans should be approached in a business-like manner: Can you expect a worthwhile return on your college investment that would justify this expense? Or do you need to consider alternatives, such as postponing college for a year to earn money or starting out at a less expensive community college?

The answer depends largely on the degree being pursued and how the workplace rewards that degree. Financial compensation is certainly not as important as a career that provides personal fulfillment. However, it may not be the best plan to go into a field with low-income expectations burdened with student loan repayments.

In addition, it?s important to shop carefully for loans. While federal student loans can have interest rates as low as 3.4 percent, private lenders are charging rates as high as 18 percent or more. That?s a huge difference.

Bottom line: If a student loan is necessary to help a young person earn a college degree that will improve his life, slow down. Just consider it carefully because that loan will have to be paid back. And soon.

Dana?s Take I?m a big believer in the pay-as-you-go method when it comes to financing college. If not enough money has been saved to cover the cost, then compromises need to be made.

There are certainly plenty of options to avoid putting oneself in debt. Two possibilities are working part-time or going to school part-time. Opting for a less expensive college or going to a local college and living at home are two others.

There are a number of ways to reduce or postpone college expenses before considering going into debt. Each and every one of them needs to be honestly considered before opting for the ?money now, pay later? of a student loan.

The last thing young people need when starting their careers and establishing their households is a mountain of debt looming over them.

While a student loan can be helpful, not having to repay one can be priceless.

Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor?s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at raybrandon@brandonplanning.com.

Source: http://www.memphisdailynews.com/news/2012/feb/2/consider-student-loan-debt-carefully/

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