Maybe, but then again, maybe not. You see, we just so happen to live in a culture where bigger is perceived as better. But that not always be the truth, especially when you are considering taking on thousands of dollars in debt.
Are You Sure You Want to SuperSize your Student Loan?
Yes, it is tempting to simply look at the various college aid offers and just go for the largest one. Really, doesn't $30,000 in aid look better than $17,980? On the surface, sure, but dig a little deeper, do just a little bit of homework for yours or your student's situation and you may, in fact, decide to make a different choice.
The number you are looking at does not tell you the whole story. Consider that number to simply be a piece of the puzzle. Your job is to find all the pieces of the puzzle and put them together in a way that makes cents (pun put there on purpose).
What Really Matters?
In a nutshell, from a purely cost perspective, the only thing that really matters is the Total Cost of Attending. Depending on the school you are considering, this total cost may or may not be broken down clearly for you. Unfortunately, as of this time, there is no Federal Labeling Law for college attendance. It would be nice if there was a labeling law so you could just read the label the way you do in the grocery store when you're shopping. Anyway, the point is to really compare you need to figure out the total cost.
What is Total Cost of Attending?
You start with what the accounting folks call direct costs. These are bills charged directly by the school for things such as tuition or books, that sort of thing. So figure out the direct costs and total them up. Now move on to what is referred to as indirect costs. Indirect costs include things such as materials, living expenses and the like. Now total up the expected indirect costs. Finally, add the direct costs to the indirect costs, and you have the total cost of attending.
Apples to Apples
No, not that silly game that was popular a while back. No, apples to apples means you figure out the total cost of attending for each and every college you are actually interested in attending. Next, you lay out the total costs for each school side by side. Obviously, you can see which school will cost more.
But Hold On
There's a bit more homework involved. Now, go back to the aid offers from the various schools. Subtract these offers from the total cost of attending. That difference is the number that has to be made up somehow, whether with private loans, plus loans or other options.
It Doesn't Stop There
Now you have covered the financial analysis of the offers. At this point you want to do a reality check. Does it in fact make sense to borrow money for the school and program you are looking at? Consider, would taking on $32,875 in student loan debt for a degree in underwater basket weaving be worthwhile? Might there be a better choice? You get the point. But let's go ahead and state it just in case. Make sure your school choice and loan or aid package makes sense for you.
That being said, taking on student loan debt can in fact be the best and smartest investment you ever make. Remember, for the price of a few years of study and few more years of student loan payments, you can come out much, much further ahead than you would otherwise.
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However, Brian McBride, an associate producer at CNN and a 2010 graduate out of Arizona State University, managed to pay off $26,500 in debt in just two years. He explained his plan on CNN Money's website. McBride owed $20,500 in student loan debt and $6,000 for his 2003 Honda Civic. He said he tackled his car loan first to pay down a higher interest rate during a six-month grace period following graduation on his student loans. In his first job out of college as a local reporter in Green Bay, Wisc., he lived frugally while working for $13 an hour. Read more here.
From her story: I started by making a budget for each of my expenses, and then made it a point to look at my bank account and my budgets spreadsheet once a week to categorize all of the money going in and out. I also calculated my monthly expenses, and tried to determine what it would take to put $500 to $1000 extra each month–on top of the $800 in minimum payments I was already making–toward putting a further dent in my loans. Since I couldn’t do it based on how much I was earning, I got creative: - Rent: I gave up my Dupont neighborhood studio and found a roommate in a cheaper neighborhood, which halved my rent. Cable I canceled my subscription, and streamed shows for free on my computer instead. - Gym: Rather than pay $95 a month for health club membership (D.C. gyms are expensive!), I started using the free facility at work, joined a running club on Meetup and streamed free workout videos online during rainy days. - Phone Bill: I limited my data usage and calls, and switched to a plan that cut my monthly bill by $30. I even told friends not to text me! - Entertainment: Instead of relying on happy hours and dinners out, I found free events on Meetup, like hiking trips and book clubs. Or I’d invite friends over for food, and they’d bring their own beer. I also only ate out if it was beneficial to my career, like networking lunches. - Travel: I went to Peru in the winter of 2010, and this year, I’m planning on Malaysia — both countries where the exchange rate is great. I stayed in hostels, and ate where locals do instead of going to pricier tourist spots. Plus, I put a little aside each month, so the expense is built into my budget and doesn’t take away from my savings. (Make travel a Priority Savings Goal in your own budget.) Read the whole thing here.
Kristin Wong paid off $12,000 in a year, despite having only a $10/hour job. In an op-ed for MSN Money, among other things, she said she moved in with her parents and held back from taking a trip or shopping for new clothes.
Sarah Knutson explained how she paid off $30,000 in debt in two years: With her first job, she made $2,000 a month and lived at home. "Each month, I repaid $1500 in debt, leaving $500 of 'fun' money," Knutson explained. She also skipped skiing and snowboarding trips.
Ohio state Rep. Christina Hagan may be an elected lawmaker, but she's waiting tables and working at her family's heating & plumbing business to try to pay off her $80,000 in student debt.
A couple paid off $30,000 in one year by skipping out on having a cell phone at all, and skipped out on having Internet and cable TV packages. "We stuck with dial-up [Internet]," one of them said.
Art Institute of Atlanta graduate Amy Kroezen collectively owed $116,000 with her husband. Neither of them made more than $35,000 a year. They decided they would commit one of their incomes solely to paying off their debt. Among other steps, she took to building her own furniture since they couldn't afford it, constructing a king-size bed, dining table and toy box. She made her own cleaning supplies and grew some of their own food. After four years, they've paid off $103,168 of their student loan debt.
Kent Lister paid off $36,000 in 7 years, saving $2,907 in interest. Tax returns had to go back into his loans, he picked up a weekend job, and then "snowballed" his payments: "When you pay off one loan/recurring payment, add that amount to your next loan. Once that loan is paid off, take those two amounts and put it into your third payment (like a snowball, it just keeps growing). Repeat until all debt is cleared."