Deferring student loan payments

I know I’ve recently been writing many columns on stocks. However, the greatest investment you will probably ever make is an investment in yourself – through education. The return on investment in education is astounding. The salaries of college graduates are several times higher than those of high school graduates, and the dividends from work keep coming as you continue to move up the corporate ladder.

Perhaps the only downside to a college education is the high cost. With college tuition increases continuing to outpace inflation, the sticker price of an education won’t get more affordable any time soon. Because of this, students are taking on more and more debt in the form of federal and private student loans.

If there’s one smart choice you made in your college decisions, it was coming to the College. Instead of taking out loans and breaking the bank of mom and dad to the tune of $40,000 a year, you are only paying around $20,000. This makes a large difference when you consider the amount of interest that’s going to be accrued on your loans.

The loan companies make it very easy for you to delay making payments. While, with most loans, you do not have to make payments until graduation, many companies now allow you to spread payments over 15-20 years. But that’s a serious mistake. While you may not be concerned about your loans right now – after all, they are probably just pieces of paper to you now and your living expenses are minimal – you are going to get a rude awakening when you graduate.

When you’ve got student loans, it’s like having a huge weight on your shoulders. And this feeling seems to drive people into deferring or extending the payments on their loans. However, the loan companies are not giving you the option to do you a favor.

They have a vested and highly profitable interest in the enterprise. The interest meter is running from the inception of your loan to its payoff. Now, those of you with loans probably have some form of federal subsidized loan with a very low interest rate.

But, if you don’t pay it off in a timely manner, the compounding of interest, at even 5 percent, will double the principal on a loan in about 12 years. You have to be responsible with your loans because they can follow you for the rest of your life. In fact, the federal government recently prevented people who declare bankruptcy from relinquishing their federal student loan liability. Yeah, not even bankruptcy will clear it up. It’s important for you to be careful what loans you take out while you’re at school.

Recently, I have seen many students taking out private student loans ranging from $2,000 to $10,000 to subsidize their lifestyle. Try not to take out these private student loans. The companies are more than happy to extend you credit because the interest rates on these loans are ridiculous. Even if one of you defaults, the interest the company will make off others will more than then make up for it.

Also, like I advocated in my last feature, keep your credit history clean. If you do need a loan, at least you will have a good chance to get one at a decent interest rate because of that high credit score. Before you graduate, you want to decide how you are going to pay off that loan. If it’s for $10,000, I don’t think it’s necessary to live in poverty to pay it off. But when you’ve got loans in magnitude of $50,000 or even $200,000, you want to get cracking on the loan.

If not to save yourself thousands of dollars and years of debt, then do it because of the future obligations. A lot of you are going to want to get married and have families. It’s going to be pretty hard paying off that mortgage for your new house, your recent $30,000 wedding and the lease on your car. Get the loan out of the way so that you can focus your monetary resources on more important things.

This brings me to another point. Many of you are probably going to want to pursue graduate degrees – if not after graduation, then maybe a few years after that. Let’s see, $80,000 in loans from the College and interest, $80,000 in loans for that prestigious graduate degree, plus living expenses since you are not working – this doesn’t look so good.

For those of you who are really focused on pursuing higher education, it is extremely important that you plan and manage your loans well, or there’s a good chance you’ll be drowning in debt for the rest of your lives. Think of it this way: When you are paying off those student loans that you have prolonged over 20 years, you are probably going to have to take out other loans and lines of credit for rent, a house and a car. This is a vicious cycle that seems to leave many college graduates with little or no savings for retirement.

Therefore, I recommend to you high achievers that you be more vigilant in your payments, paying more than the minimum, as well as putting part of your paycheck away for graduate school every month. Also, look into assistantships and student jobs, as those can significantly cut down on your tuition and living expenses.