If you go to apply for a mortgage, the bank will verify that you can afford the payments of your property. If you cannot afford it, then the bank will ask you for a cosigner. If you cannot get a cosigner you are out of luck.
With student loans it is not like that. The bank or the government give loans without calculating the capacity of the lender to pay it back. No verification, just get the money and get out. This is the same mentality which brought the U.S. to its financial crisis, lending money to people who cannot afford it.
Many students go to school not even knowing what is it they want to study. They take elective classes until they make up their mind. If their parents are paying for tuition, then that’s OK, it’s a gift from their parents. If the parents aren’t pay for the education, then they have to realize that borrowing money is a financial decision and the money have to be paid back.
I think that if students are not subsidized by their parents and they don’t know what they want, they should get a job and delay going into college until they make up their mind.
There are some careers which are in high demand and they will lead to well paid jobs. Some students get job offers even before graduation. But there are other careers which are not in demand and the only employers willing to hire the students are Starbucks and McDonald’s.
If you are studying one of those careers which have very little job opportunities, why not study part time? That way you will not be saddled with student debt for the next 10 or 20 years.
According to the Wall Street Journal, the average person changes career seven times in their lifetime. It makes no sense to get in debt for a career which most likely will lose its luster after a few years, yet the debt will still be there.
The average Canadian student has a debt of about $27,000. I have a friend who is almost 50 years old and she is still paying her student debt. I have another friend who is in her 40s and has about $40,000 in student debt.
We all know that there are careers which pay more than others, but the cost of tuition is practically the same. You could get a $100,000 salary or a $20,000 salary for the same four years of education and the same student’s fee. If you get in debt to get a six figure salary, I can can understand the logic behind that decision. But if you to college knowing that after graduation you will be struggling to pay your student debt, you’d be better off studying part time and paying for your tuition with cash.
Consequences of student debt
Student debts could have detrimental effects with lifelong consequences. High student debt could be the reason for:
- High stress level, which could lead to poor health
- Delaying having children
- Delaying getting married
- Delaying buying a house
- Delaying retirement saving
- Not being able to pay your kid’s education
How to get out of Student Debt
Getting out of student debt is similar to getting out credit card debt. Here are a few steps to consider:
- If you have several loans, make sure you pay the one with the highest interest first, while making the minimum payment for all the others.
- Stop all frivolous spending. Don’t go to restaurants, movies nor bars. Don’t travel. Don’t do any recreational activity which cost money.
- Look for extra money. This is the sharing economy, the gig economy. You can rent an extra room through Airbnb (here is my affiliate link) or you can drive an extra few hours for Uber (here is my affiliate link). There many more things you can do… You can babysit, you can pet sit, you can assemble Ikea furniture, etc…
Assume that you owe $25,000 at 7% interest. If you pay about $100 per month you could be debt free in about 5 years. Of course, if you pay more you could be debt free even faster.
Additional tip. Assuming you have good credit, you could go to the bank and ask them for a loan (let’s say 5%) to pay your 7% student debt. The debt doesn’t go away, but the interest you pay on it is lower.
We all deserve a secondary education. Just remember that if you borrow money for education it becomes a financial decision.