Deciding How Much To Borrow In Student Loans
Liz Weston, Excerpt from The 10 Commandments of Money
By every important financial measure, college graduates are vastly better off than people who only have high school diplomas:
There’s no doubt that college graduates on the whole make out far better than those with only high school diplomas. The gap will continue to increase, as the United States continues to shift from manufacturing to a service economy. The kind of unionized jobs that used to pay high school graduates well will continue to disappear, while the growth areas for those with little education will be in lower-paid service jobs.
The percentage of jobs requiring some college education is expected to grow to 62 percent by 2018, according to the Georgetown University Center on Education and the Workforce. That’s up from 28 percent in 1973 and 59 percent in 2007.
But you need to make sure you’re getting an education you can afford. If you’re borrowing money to pay for college, the amount of debt you take on (as well as the kind of loans you get) can skew the whole education-as-investment equation. It’s not only possible to buy an education that won’t pay off, it’s becoming far more common.
In general, college students shouldn’t borrow more for their educations than they expect to make the first year out of school. And they should first exhaust their federal student loans options before considering private student loans. Federal loans have fixed rates, numerous repayment options and the possibility that balances can be forgiven after several years of on-time payments. Private student loans have variable rates and few consumer protections. Both types of loans, federal and private, are extremely difficult to discharge in bankruptcy. Since this is debt that can follow borrowers for the rest of their lives, it should be taken on with extreme caution.
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Adapted fromThe 10 Commandments of Moneyby Liz Weston
The New York Times called her latest book, “The 10 Commandments of Money: Survive and Thrive in the New Economy,” a “wonderful basic personal finance book…[with] enough counterintuitive ideas to keep even people who know a bit about personal finance reading further.” Her earlier book, “Your Credit Score: Your Money and What’s at Stake; How to Improve the 3-Digit Number that Shapes Your Financial Future,” is a national best-seller and was recently published in a third edition.
Liz’s columns run twice a week onMSN Moneywhile her question-and-answer column “Money Talk” appears in newspapers throughout the country, including the Los Angeles Times, the Palm Beach Post, the Portland Oregonian, Stars & Stripes and others.
She also writes a money column, “My Two Cents,” for AARP the Magazine, the largest-circulation magazine in the world with 22 million subscribers.
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