Student Loans – 2012

Jun 21, 2012 by

Are Student Loans right for me?

We know this is a scholarship website, and we are not a good source for loans, but let’s face it: the economy is poor at best, colleges have been hiking tuition biannually, and the job market for new grads is immensely fierce. What kind of risk should you take with taking out loans and attending a big-name school, versus staying home and attending a cheaper school?

There are definitely many reasons against student loans, and we’ll present some topics to sway your decision either way.

1. Student Loans are a business

Yes, you read that right. Governments and companies don’t give you loans out of the kindness of their hearts, but do it because they make a huge profit. Student loans are one of the biggest and surest income sources for our government because they can lend out money at higher rates than they can borrow. And also, student loans are not-default-able. Let’s go more into this.

2. Not Default-able

Student loans are not default-able, what does this mean? It means that even if you graduate college, can’t find a job, and flat broke, you can’t get rid of your student loan through a bankruptcy filing. It is very rare that student loans get discharged, and not without going through court. This applies for private student loans as well since 2007.

3. Colleges and “Preferred Lenders”

Some colleges might persuade their students to use a more “trust-worthy” or “sponsored” private lender. This is because they are possibly getting a benefit or some sort of commission arrangement with that lender and making money on the back end. This is bad news if it becomes more common, as students can be tricked into higher rates because they trust their school’s recommendations.

4. Rates and Repayment

Student loans usually have the lowest interest rates of any consumer available loans out there. Lower than mortgages, auto loans, and private loans. Currently this rate is at 3.4%, although it will rise to 6.8% fixed in July 2012 if no further law is passed (this doesn’t make it very low any more). Repayment of the loan also begins after the student has finished school for 6 to 12 months (even if they did not graduate).

5. Times have Changed.

In the early 1990s and 2000s, when the economy was booming, there was little doubt whether or not to take loans and obtain that great degree. The average yearly salary of graduates would typically be higher than tuition at a 4-year state school.

2012*: $40,000 loan – $40,000 average salary – $460 per month for 10 years. Cost of gas is $4.20. Rent and food costs are increasing. One can live comfortably for $1,500 a month.

$40000 – tax (35%) = $26000 – Living expense = $8000 – Loan = $2480 Remaining

1998 @ 6.8%rate :  $30,000 loan – $30,000 average salary – $340 per month for 10 years. Cost of gas was $1.50. Rent and food costs were much cheaper. One can live comfortably for $1,000 a month.

$30000 – tax (30%) = $21000 – Living expense = $9000 – Loan = $4,920 Remaining

Yes, you would be poorer today with a full college loan than you would have been 14 years ago, assuming same degree and same starting job! Even then, it is less likely you would be getting that starting job than it was in 1998! *Note that loans initiated after July 1, 2012 is currently set to have a 6.8% fixed interest rate. This is double the current 3.4% interest rate.

So what’s our conclusion? Times are hard and money is tough to make. If you want to attend that prestigious private school, be sure that you can land some scholarships and grants first, and make student loans absolutely your last choice. Maybe the job market will be better when you graduate, maybe it’ll be worse. Don’t put all of your eggs in one basket, that’s all we’re saying!

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  1. Andrew Jackson

    Hi Admin,

    I am Andrew Jackson. I am a financial writer and want to contribute a guest post for your blog :-easyscholarships .cc and it will be only published on your blog.

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    Hope you would like my proposal and give me an opportunity.

    May I send my article?

    Best regards,
    Andrew Jackson
    Skype Name:a_jackson051

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