I think one of the most frustrating realities of personal finance is that it is totally possible to make mistakes when you are young that have a huge impact on your life and finances for many years to come. Take student loans, for example. They don’t sound particularly scary. When you are in school you know many people who have them (in fact, odds are good that you knew more people who had student loans than didn’t). It seems like taking out student loans is “what everyone does.” So what could be scary about that? Plenty!!
6 Things I Wish I’d Known Before Getting Student Loans
1) They will need to be paid off. It sounds stupid, but I think sometimes when you are dealing with large amounts of money for student loans it can feel a little like Monopoly money. For some reason when we are taking out student loans we may not stop to consider the fact that we are dealing with amount larger than we’ve ever made before (at least that was the case for me!)
2) That you are going to have to pay interest. And in many cases if you ever defer the loan payments for any reason, the interest is going to continue to accumulate! Deferment is not a nice vacation from loan payments- the loan company is making money off you in the form of interest while you are in deferment (except in certain cases such as subsidized loans).
3) That you are going to be paying them off for a long time. You will usually be paying off your loans for a much longer period of time than you actually went to school for. I think if I had stopped to consider this fact while in school, it would have inspired me to live much more cheaply while in school (instead of living too high on student loans as I did). My loans are currently scheduled for a 25 year payment plan- that’s a quarter of a century, people! I certainly wish that my 22 year-old self had stopped to consider that.
4) That it is nearly impossible to get out of paying off your student loans. Pretty much the only way to get out of paying off your student loans is to die. In most cases they cannot be discharged in bankruptcy. Yes, you heard correctly: you have to pay them off or die. That to me is the sign that student loans are a very dangerous form of debt.
5) That large debt like student loans can put a damper on many other things in later life. Money that could be used to save for a down payment on a house or an increase in your retirement savings instead is flying out the window every month to pay back your student loans.
6) That the student loan company is going to get theirs first. Meaning that when you first start paying off your student loans if you only make the minimum payment you are essentially making pitiful progress on getting the principal paid down. Why? Because the student loan company is getting theirs first, of course! At the beginning of your repayment period the bulk of your payment will likely be going toward interest. What, did you think that somehow these things were going to be stacked in your favor?
My hubby and I actually graduated at a really great time, in 2006. In the mid 2000s in the US, student loan interest rates were at record lows. We managed to consolidate and refinance our loans then and we got great interest rates of 2.5% and 3.5%- the repayment period also got extended to 25 years when we did that. Fast forward seven and a half years later and guess what? We have made very little progress in getting the loans paid down because of #6. Even though we have great interest rates, we are really sick of making payments on these loans at this point and having a large amount of debt is starting to impact our financial decisions for the future. So we’ve recently changed our attitude on debt and have decided to make some financial changes to turbo-charge our debt payoff and just get it gone.
Luckily we are able to live in a low-cost area and have worked hard to keep our cost of living well below our means, so we are able to do that. However, there are most definitely people graduating today or who have graduated in recent years that may not have the option to do this. Either they have to live in a high-cost area because that’s where the jobs are, or even worse: Despite the fact that they may have a good job they may not be making enough to cover their student loan payments along with the rest of their expenses.
The moral of the story: if you know someone who is considering taking out student loans, educate them! Help them become more aware about student loans. Show them this article. Tell them to check out Scholarship Owl to see if they can get any scholarships before they go the student loan route. Or direct them to these websites that offer a wealth of information on student loans.
http://studentaid.ed.gov/ (US)
https://studentloans.gov/ (US)
http://www.studentloannetwork.com/ (US)
Can you think of anything else that you wish you had known before taking out student loans?
Update: Ever since we decided to screw the math and get out of debt, we have now shaved over 12 years off our estimated repayment time. At this rate we fully expect to be completely out of student loan debt within the next year!!
Photo: belchonock/Depositphotos.com
More from my site
How to Earn an A in Student Loan Repayment
Learning from Money Mistakes #1: Living too high on student loans
How I Paid for College Without Student Loans and Without The Bank of Mom and Dad
Screw the Math- I Am Getting Out of Debt!- Screw the Math- I Am Getting Out of Debt!
How to Hammer Your Way Out of Debt
Shannyn @frugalbeautiful.com says
atI totally hear you- you’re not only deciding on a loan that’s going to be paid off longer than you’re in school, but longer than you’ve been ALIVE! Paying off a loan for 25 years when you’re 18 years old doesn’t even feel real. Most parents wouldn’t let us buy a house at 18 or 22 but we take on a mortgage in debt.
When you start looking at student loan numbers it seems unreal, as you said, before you even earn real income. $5,000 is real, but $95,000 is just unfathomable so it doesn’t hit you emotionally the same way. We gripe over a $50 textbook for class but $50k is beyond comprehension.
cmf says
atThat’s so true- when we talk student loans we’re talking numbers that really are “unfathomable.” I think that’s a big part of the reason why so many students get in trouble with student loan debt- it just seems unreal at the time, or they assume that “I’ll be making enough to pay that off.” Even if you can afford your payments, it’s still a big sting to have to send several hundred dollars a month to the student loan company (for YEARS)!
DC @ Young Adult Money says
atHmm there’s not really anything else I would add to this list. I suppose I would have told myself to focus more on my career and to see college as a way to get a career started versus a place to learn and grow. Is that bad? haha.
cmf says
atThat’s not bad! You’re right, you can make connections in college that can definitely help jump start your career.
Grayson @ Debt Roundup says
atI am actually lucky that I didn’t need to take out student loans. I do see the issue with them and what a toll they are taking on most graduates.
cmf says
atThat’s great that you did not have to take out student loans! I did not have to take out any in undergrad, but I more than made up for it in grad school!
Andrew@LivingRichCheaply says
atI went to law school and took on a significant amount of student loans on top of my undergrad loans. Most would think that it was a great return on my investment, but I’m not sure. I know many who went to law school and are in 6 figure debt, with poor job prospects. Taking on student loans is not always worth it. Many of my peers didn’t worry about the debt, thinking that they’d be making the big bucks and paying the loan off would be a piece of cake. Not true. I’m lucky that I was able to consolidate into a low interest rate though.
cmf says
atOh, especially with law school, you’re right. I’ve had friends who’ve gone to law school and struggled to find a job afterwards. Not cool when you have so much debt. I can see how that would be a really bad place to be in.
Kurt @ Money Counselor says
at#4 is the one that surprises many people. In general, student loans can’t be discharged through bankruptcy. Just about the only way to get rid of them is to repay!
cmf says
atYep. Not that I have tried getting out of paying them off or anything, but I imagine there are people out there who have been pushed to the brink of bankruptcy because of student loans and other debt. There’s no way out of them- it’s not like a mortgage where you can sell the house.
MMD @ My Money Design says
atI remember when I was starting college I was disgusted by how many people were getting swindled by credit card sharks trying to get young naive college kids to sign up for them.
But now that’s apparently nothing compared to what student loan sharks are doing to young people today. I can’t believe how much debt people get themselves in to. And it seems like there is a severe lack of awareness when people sign up for them.
cmf says
atI don’t know if there is anyone really pushing student loans like a “shark,” but it’s certainly a big problem that I think way too many people get themselves into (WAY too deep) before they realize the damage they have done and how much work (and how many YEARS) it’s going to take to get out of it. I agree, at least for myself it was a HUGE lack of awareness.
Hayley @ A Disease Called Debt says
atEeek – number 4 is scary stuff. I don’t have any student loans but have a lot of other bad consumer debt. I want to do all I can to encourage my daughter to work her way through Uni if she chooses to go when she’s older. I hope to have some money put away just in case to help out if need be but I really hope she doesn’t have to go down the student loan route.
cmf says
atThat’s a great goal. I think the most important thing is to make her aware of exactly how much of an impact big debts like that can have on future life. When you’re in your late teens and early 20s it’s easy to disregard that.
Michelle @fitisthenewpoor says
atI wish someone drilled in to my head what interest was. I really missed that ball.
cmf says
atI know, right? It’s like the things that we should have been SUPER aware of somehow fell off the radar. I’m guilty of that and of just not considering the impact of taking on such a huge debt. If I would have thought about that I think I would have lived much more frugally in school.
Ryan @ Impersonal Finance says
atI wish I knew these things, too! I really wish they had provided me with some kind of form showing just how much my expected monthly payments were going to be, and some sort of amortization schedule. I know I’m at fault for being ignorant about it, but still… I got in way over my head in terms of my loans and the value of my degree. I’m lucky enough I was able to get out from under them, and relatively quickly, too!
cmf says
atGood for you! We are working on it and hoping to have them gone in 2-3 years. I am hopeful that there is beginning to be more awareness of the dangers of student loans and that there is starting to be more education provided to students about this these days.
SuburbanFinance says
atI’m relieved that I didn’t end up getting student loans, but I know most of my peers had to, to get through school.
cmf says
atGood for you! That’s definitely the way to go if at all possible!
La Tejana @ Debt Free Tejana says
atWow, you articulated this so well. I wish I would have known all of these things prior to taking out $80k in loans. At the time, my mindset was that “everyone is taking them out, so it can’t be thattttt bad, right?”. WRONG!
I also wish that Student Financial Aid counselors I worked with in undergrad and grad (or my parents for all that matter) would have explained the actual gravity of the loans. I was 17 when I went to college and didn’t realize how it would actually effect me at the age of 25!
cmf says
atI know, it’s hard to understand the gravity of the loans when you are that young. And I recall having the attitude that “when I get done I’ll be making money and it won’t be a big deal to pay it off.” My biggest regret is not that I took out loans but that I didn’t try very hard to live as cheaply as possible while I was in school. Probably coulda completed my degree with a lot less.
David says
atStudent loans are the worst. They take up a lot of time, money, and effort. That is why every time I played LIFE with my family, I didn’t go to college. However, in the real life, I do recommend going to college. 🙂
cmf says
atI’ve always thought that going to college was a good thing. But lately seeing people who skip college and earn money on the internet or by starting a business makes me wonder if it’s a little overrated, especially given the crushing student loan debt that people are graduating with these days.
Mel @ brokeGIRLrich says
atUgh, no kidding about number 3. And number 5. When I think about the financial safety net I could have now if I still had all that money I paid back in loans in my savings accounts and invested… sigh. Lesson learned.
cmf says
atI know, it’s really amazing to see how much money we are putting toward debt repayment every month. It really inspires me to get the loans paid off ASAP so we can start keeping all our money every month instead of sending so much toward debt repayment!
Kim@Eyesonthedollar says
atI honestly don’t regret my student loans. Although I never took the full amount I qualified for, I certainly could have gotten by on less than I did borrow, so that is something I would do over in hindsight, but overall, they gave me the chance to get a great education that has served me well.
What I do wish I could do over is making it more of a priority to pay them off faster. We got caught up in lifestyle inflation and the next thing you know it had been over a decade with very little paid off. Thank goodness, we got our butts in gear and paid those suckers off last year. How sad to be closer to retirement than career beginning and still owe student loans!
cmf says
atWe don’t regret going to school and getting our degrees- what we regret is that we made so little effort to live as cheaply as possible during the years when we were in school. I think we could have gotten by with taking out less student loan money, which sure would make life nicer now! And yes, we have also been very complacent about paying them off until recently- and now we can’t get them gone fast enough!
Holly@ClubThrifty says
atI hear ya. When you’re signing up for the loans, you just assume everything will work out. We borrowed more than we should’ve and you’re right- the bill eventually comes due.
cmf says
atYep. There’s no avoiding it. I’m not sure if it’s a 20 year-old thing to just assume it will take care of itself, or if it’s that Monopoly money phenomenon again…
Fig @ Figuring Money Out says
atI wish I had known all of this too! I didn’t know anything when I went to college cause I was the first one in my family, so I just ended up with a ton of debt I didn’t need and struggled to pay back because I graduated in 2008 to no job. Luckily my siblings after me knew more, but I wish all young people knew all this about student loans before they go to school!
cmf says
atI know, there really should be more education on this type of thing in high school. Especially in the case of poor job prospects, it just does not pay to take out a lot of student loans.
Shannon @ The Heavy Purse says
atYou hit the nail on the head – student loans don’t seem very real or tangible at the time. You’re 18. You’ve probably never made more than a few thousand dollars a year. If it was super dangerous, would everyone be doing it? Wouldn’t our parents stop us? Sigh. All great points, Dee. #4 is one most people don’t realize. Some people incur massive amounts of student debt, but even if they declare bankruptcy, they will still have to pay off their student loans (in almost ALL instances). It makes sense when you think about. Otherwise people would go straight from the podium and accepting their degree to declaring bankruptcy to get rid of those students loans. I believe college is a worthwhile investment but like all investments, you need to do your due diligence first. That debt can be a beast you carry for many, many years.
cmf says
atI hadn’t really thought about the reason why you can’t discharge student loans in bankruptcy before. That does make sense I guess, since pretty much everyone is broke when they graduate from college and bankruptcy may look like a pretty good option if you can’t find a job. It’s too bad more students aren’t aware of #4 at the time they take out loans though- that knowledge may make some think twice 🙂
Laurie @thefrugalfarmer says
at#1 was the hardest for us, but with credit cards instead of student loans. You pull out that little card, knowing you won’t see the bill for another 30 days, and the money just doesn’t seem real! Great job, you guys, on getting those pesky student loans paid off earlier!
cmf says
atThanks, we are working hard on it! It’s going to be kind of a long road, but we will get there!
Vinu says
atStudent Loans are one of the worst things created for people in the United States. Student loans are the number one debt that is facing me today. I know I will be paying for them many years to come. The government should at least reduce the interest rate from six percent to to 2 or 3 percent because right now almost half of my payment goes toward interest.
Dee S says
atI hear you, we are facing big student loan debt too. We are paying extra toward it every month, but it will still likely be years until ours is gone. I wish that schools would make more of an effort to educate students about educational debt before it’s too late. I think that some are starting too, but I think there are probably still far too many people graduating with student loan debt who are in for a big surprise when they have to begin making payments on them.
The Bee says
at# 3 hit me the hardest. I had no idea that I’d still be paying off my loans. It’s been 7 years since I finished grad school and I’m not even close to being done. I wasn’t responsible with my spending when I was in college, but I thought that would magically change once I was out of college and I’d have the loans paid off in 2-3 years. I was actually more responsible at 18 and 19 and paid for my first two years with cash. Then I got closer to graduation and the big-girl money and it was all downhill from there….
Dee S says
atSounds like we followed a similar path! I wish I would have been more responsible with my student loans as well- and I too had a spending problem in grad school. It really is painful how very long it can take to pay those loans back- eight years later we aren’t even close to having them paid off, although we have recently accelerated our payments and hope to have them gone much sooner than they’d otherwise be paid off.
Amy White says
atMy daughter has made it through the her first two years of college without student loan debt and is ready to take the plunge for the last two years. I’m really scared for her to make this decision and yet am concerned she won’t finish if she doesn’t do it. We’ve educated her but still know that it is a slippery slope.
Dee says
atHuge congrats to her for making it through the first two years without student debt! It sounds like she is going to be more educated on student loans than most, so hopefully that knowledge will serve her well!