As a young individual applying for college,
you may not realize that you are actually looking to make your first big
investment of your life. Higher
education is often viewed as a financial investment in your future. It makes sense. Invest money in a two or four year program
for a degree. This degree leads to
opportunities of greater future earning potential. It is simple; invest money to make money.
There was a growing trend that called for
everyone to get a college education which eventually increased competition in
the labor market. It became harder to
get a job without a degree which only helped propel the trend. Basically, everyone wanted a degree because
everyone wanted a job and money.
With that being said, the rise in demand
for college education brought on a rise in tuition and cost of attendance. The escalation of college expenses increased
the prominence of student loans. Since
the average college applicant could not cover the overall cost of attendance,
student loans became a popular solution to funding college.
Long story short, outstanding student loan
debt exceeds $1.3 trillion today, and it surpasses consumer credit debt as one
of the top sources of debt in America.
This debt falls heavily on the millennial generation and college
graduates within the past decade. With
financial hardship right off the bat, it became much harder for new, young
employees to start other important investments which has greater repercussions
than first thought.
The moral of the story is that important
investments are neglected by those with student debt. Investments such as home ownership and
retirement funds are extremely important for financial health down the road,
and it is common for student loan borrowers to focus on student loan debt
before moving on to other goals.
Luckily, there are ways to limit the burden
of student loans that lead to more financial flexibility in the future. Some of these involve circumventing student
loans entirely while others involve a change in approach to them. Here are several ways to quickly cut away
your student loan debt and pave the way to greater lifetime financial
investments.
Find
"Free Money"
When talking about "free money,"
you are talking about grants and scholarships.
These are opportunities to fund your college education without any
repayment responsibilities, hence the term "free money."
Scholarships are extremely popular. They are offered to people for any and all
reasons such as merit, heritage, financial need, or even individuality. The best way to find which opportunities fit
your criteria is to utilize online scholarship
resources. Sites such as these lay
out information and deadlines for scholarships
which makes it easy to secure free funding for higher education.
Grants are similar to scholarships, but
they are less diverse and not as abundant.
The federal government provides several grants (Federal Pell Grant,
Federal Supplemental Educational Opportunity Grant, and more) to students of
significant financial need, prospective teachers, and military veterans.
The benefits of a grant or scholarships are
simple. The need for a student loan
lessens with multiple scholarships and grants, so there is a better chance of
graduating debt-free.
Student
Loan Refinancing
Many graduates find themselves with
multiple student loans which is a recipe for disaster. More than one loan means more than one
interest payment which can exacerbate a loan uncontrollably. There is a simple solution to mounting and
multiple interest payments: student loan
refinancing.
Refinancing is a well-known tool when
dealing with mortgages, and it is growing in prominence for student loans. A private lender essentially refinances
multiple loans (private or federal) by lumping them together and changing the
repayment terms to benefit the borrower.
The end result is a loan with one interest
rate and an altered repayment period.
Refinancing nearly always reduces amount spent on interest over the life
of a loan. Without the burden of student
loans, a retirement fund can be started without causing as much financial
stress.
Pick
the Right Major
One interesting criticism of student loans
involves choice of major. Today, loans
are given out without much consideration of the borrower's major which has been
brought up with controversy.
Without naming any majors, a simple generic
example suffices. An overall loan of
$120,000 for a four year degree is disbursed.
The borrower finished his or her education only to enter his or her
field with an earning potential of $35,000 a year. From the lender's perspective, this is a bad
investment. From the borrower's
perspective, this is a tough debt situation.
The piece of advice here is to pick the
right major. Researching different professions
and salaries can provide insight on different earning potentials. It is
ideal to choose a career path that has the ability to sustain student loan
payments on top of the cost of living.
This is generally good advice, but it is paramount for a healthy
investment career.
Proactive
Payments
There are a couple of ways to tackle
student loan payments that greatly decrease the repayment period. And they both involve tackling interest in a
different way. Student loan interest
capitalizes each month which basically means each subsequent interest accrual
is larger than its predecessor.
One of the first practices is starting
interest payments while still in school.
This keeps interest from building excessively onto an original principal
balance over the life of the loan. The
other method involves making monthly payments that are larger than the minimum
requirement. This practice limits the
rate of interest accrual by cutting away at the principal balance.
By paying off interest early and making
larger principal payments, the capitalization of student loan interest can be
countered which saves money down the road.
Money saved down the road can be put towards other important
investments.
