It’s every student’s (and parent’s) college debt horror story.
A Palm Beach County college student profiled by the local newspaper racked up $212,000 in debt studying at the University of Miami’s music program, with no degree to show for it.
Now he’s dropped out of UM and is continuing classes in information science at the local community college, trying to pay down all the debt while earning $12 per hour in his current job.
Local reporter Jeff Ostrowski, staff writer at the Palm Beach Post, reported on this story of student debt gone way wrong.
This may be the extreme scenario, but there are important lessons parents and students can learn from this example:
1). Keep a running tab of how much you’ve borrowed, and track the interest rates and payback terms. The student profiled in the story admits he totally lost track of how much he had borrowed and never stopped to run a total.
2). Know what kind of loans you’ve taken out. There’s a big difference between public (government) and private (bank) loans when it comes to payback terms. “Federal loans let students repay based on their income, but private student loans don’t offer the same flexibility,” says Ostrowski.
3). Don’t let debt exceed your expected first year earnings after graduation. Ready to borrow? Do a careful cost/benefit analysis and hold off until you’re satisfied you’ll increase your earnings enough to justify the loan costs. If you’re going into a lower-earning field, control your borrowing so you’re not saddled with debt you can’t pay back without totally ruining your life.
4). Calculate the monthly payoff before you sign on the dotted line. More colleges are sending students for loan counseling before they borrow so they understand what they’re getting into. Students and parents should see what the monthly payoff amount will be after college, so they truly understand the sacrifices they’ll need to make. It’s hard for kids to understand what it means to borrow $25,000, but they can probably appreciate the impact of a $451 per month loan repayment plan.
Try before you buy: Try Sallie Mae’s Student Loan Payment Amount Estimator to see what your monthly payment will be before you borrow.