Student loan debt in the United States now totals over $1.7 trillion, with the average federal student loan debt balance at $37,338, according to the Education Data Initiative. If you’re one of the 43.8 million student loan borrowers — or if you’re currently in the process of figuring out how you will finance your education — you’re probably looking for advice on how to make it all manageable.
The Amount of Debt You Should Take on Depends on Your Degree and Career Prospects
Dave Ramsey, author of “The Total Money Makeover” and host of “The Ramsey Show,” doesn’t agree with the belief that student loan debt is “good debt.”
“Student loans are often said by people to be ‘good debt,’ which is laughable,” he said on the “Borrowed Future” podcast. “Is education a good thing? Yes. Is it worth investing in? Yes, in a proper setting, with proper analysis as to what kind of a degree you’re going to get, and is it applicable in the field.
“This idea that you’re automatically going to get a return on investment assumes you’ve completed a degree in a field that will pay you more than you would have made had you not gone to school,” he continued. “And it assumes you graduate. So, it’s a stupid set of assumptions to get us to the point that this is ‘good debt.'”
Never Fall Behind on Your Payments
Suze Orman, host of the “Women & Money” podcast, wrote in a blog post that “falling behind on your student loans is one of the worst financial mistakes you can ever make.”
“The penalties and fees if you fall behind, and into default, can add thousands of dollars to your bill,” Orman said. “And there’s pretty much no way to escape this obligation. Student loans are nearly impossible to get discharged in bankruptcy court. Moreover, if you manage to make it to Social Security retirement age and still have a federal student loan balance, the government can take some of your monthly benefit as payment.”
Aim To Pay Back Your Student Loans Within 10 Years of Graduating
Orman recommends making sacrifices now to pay your student loans back quicker.
“In general, I don’t recommend going with longer-term repayment schedules, as you will be stuck owing a lot more interest over the life of the loan,” she wrote in the blog post.
The exception to this is those who qualify for the Public Service Loan Forgiveness Program.
“Under the Public Service Loan Forgiveness Program, your loan balance will be forgiven after 10 years of payments (120 on-time payments) and you will not owe any tax on the amount that is forgiven,” Orman said. “For this reason, it makes sense to apply for an income-based repayment plan with a longer payback period.”
Automate Your Payments
To ensure you never miss a student loan payment, Orman recommends automating the process.
“I don’t want you ever — and I mean EVER — missing a payment,” Orman wrote in the blog post. “That’s a slippery slope that can be incredibly expensive to climb back up. Please set up an automated direct payment from a bank account to your loan servicer.”
Don’t Take on Big Loans Just To Attend a ‘Big Name’ School
Paying for a degree at a top school may not always be worth it, said entrepreneur and “Shark Tank” star Mark Cuban.
“The most important criteria when choosing a college is affordability,” he tweeted. “Go to a school you can afford. A community college that offers transferable credits is always smart. There isn’t a lot of value add from big name schools for freshman or sophomore classes, particularly when a motivated student can augment their studies with free online courses from the big names.”