How to approach student loan like a pro!

According to the Federal Reserve estimates, student debt in America has nearly tripled in the past decade; from $0.6 trillion in 2008 to $1.5 trillion in 2018. Average student graduating from college today has approximately $37,000 in student loans. An overwhelming burden for a young college graduate starting out in his or her career.

Education costs are skyrocketing and the lending industry show no sign of slowing down easy access to capital to vulnerable students wanting to join the workforce.

Student loans were intended to help the youth transition to adulthood by providing affordable means to fund college education. However, it has become the Achilles heel for many affecting everything from home ownership to family planning.

Do you have family members about to enter college? In this post, I want to share few tips to approach student loan like a pro!

 
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1) Always Borrow From the Federal Government First

There are three different types of Federal Student Loans available which include the Federal Direct Loans, Federal Perkins Loans and the Federal PLUS Loans. They differ based on qualification and need, but they should always be the first choice of lender.

Federal loans offer lower fixed rates. Recently as low as 3 to 4%. In comparison, private student loans can charge interest rates of 15% and oven more. In addition, federal loans offer much more flexibility than privately issues loans. For example, based on your income you could differentiate your monthly payment. In some cases, you can even defer payment if you are in a dire financial situation. Lastly, if you decide to work in public service or select non-profit organization, there are additional options available such as loan forgiveness

2) Avoid Private Loan

If the cost of your education exceeds what can be afforded with federal loans, it could be tempting to look at private loans. However, you should always aim to avoid funding your education with private loans.

Private loans are much less flexible and forgiving than Federal loans. For example, unlike federal loans, interest rate does not need to be fixed. Private loan lenders can offer variable interest rates which mean they can change with the market conditions. There is also no room to negotiate payment based on your income or financial situation. If you are having a hard time finding a job or are not making enough to cover your loan payment your options are very limited.

3) Evaluate Loan Consolidation Carefully

If you have multiple student loans, consolidation could be very tempting. Having one single payment versus many and in most cases, lower monthly bill. However, as anything that sounds too good to be true, there is always a catch.

Most often, the lower monthly payment occurs because the consolidation company is lengthening the term of the loan not lowering the total amount. And with a longer term, you would essentially be paying more over time.

Another effect of consolidation is that there is no going back. This could be especially detrimental if you happen to consolidate federal and private student loans. You would lose all the flexibility that federal loans provide such as payment deferral and restructuring in the event of financial hardship.

Evaluate loan consolidation carefully and make sure you understand all the impact this decision comes with.

4) Pay Them Off Quickly

There is no better way to gain control of your financial life and emotional peace than by eliminating debt. The mainstream teaches us that are are good debt and bad debt and student loans are good debt because they help us increase our income. However, as someone who worked through paying of $105,000 student loans I can tell you there is no such thing as good debt.

When you have debt, you spend not only your precious time servicing this debt, but also your emotional energy worrying and thinking about it constantly. If you have student debt, pay it off as quickly as possible. Simple. Then spend your mental and emotional energy on things that are really important to you; family, relationship, adding and creating value.

Do you have student loans? Or family member about to enter college? How are you thinking about student loans?

Why you need to start saving for retirement

Saving for Retirement - What comes to your mind when you hear these words?

“Ummm… I don’t want to think about that right now”

“I’m never going to retire! I’ll work until I fall dead!”

“No need to worry. Isn’t that what Social Security is for?”

“I know I should be saving, but how much??”

Despite what our first response is, survey routinely find that many of us are terrified of running out of money in retirement. Yet most of us have chosen denial because we don’t feel we’ve adequately prepared for it.

I want to share three reasons why you need to start saving for retirement today!

 
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1) We Are Living Longer Than Ever

According to the USC School of Gerontology, the life expectancy in America today is higher than any other period is history due to improvement in healthcare services and investment in medical research. United Nations data report that number of 65 years and older rose from 8% to 12% between 1950 and 2000. This figure is expected to rise to 20% by 2050!

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More than a quarter of 65 year old today can expect to reach the age of 90! A unprecedented feat in the history of humanity. Compare that to most individuals born in 1900 did not live past the age of 50.

If we are living longer, we need more money to sustain us through our retirement.

2) We Can’t Work Forever

You might be thinking, “yes I’m living longer, but that means I can also work longer!”

We’ve heard people say, “I’ll never retire” or “I’ll work until I drop.” However, the reality is we might not always get to choose the when and why we stop working. Statistically only 20 percent of individuals past the age of 65 remain employed. Yet most of think we will be the exception. Majority of people who retire leave the workforce much earlier than they planned and this is often brought on by health issues or by family care-giving needs.

Leaving the workforce to provide family care-giving is a scenario my wife and I’ve often speak about. Though our parents are healthy right now, we see care-giving as an inevitable scenario given that they are pushing 60 and 70, . It is highly likely that that the decision to work may not be up to us even if want to continue to work, .

3) The Responsibility Falls On You

Some of us believe that our company or our government will ultimately take care of us in retirement, but sadly that is no longer the case.

Outside the public sector, pensions, also known as defined benefits plans are being replaced by 401k - a do it yourself plan. I’m sure we’ve heard of older folks talking about working at a large corporation for 40 years and getting a life time pension. However, such employer paid pensions are a thing of the past. If you want to sustain yourself after retirement you will need to create your own retirement plan.

Social Security is also not the solution. In the 1980s, social security income could cover up to 50% of a retirees pre-retirement salary. Today that number is down to 40% and is continually declining. While Social Security will most likely be around when we retire, it will not have the same income replacement power as it did before.

One of the major financial concerns Americans have is not having enough money for retirement. Are you saving for retirement today? If so is it enough?

So you are thinking about Graduate School...

Many of us have thought about it.

“Should I go back to school for a graduate degree?”

“Should I pursue that MBA I always thought about? Law School? Or a Masters in [fill in the blank here]?”

We dream of that new shiny graduate degree propelling our career to the next level. Creating new opportunities. Generating more income.

Average salaries for people with graduate degrees is higher than that for people with bachelor’s degrees. However, it doesn’t always mean graduate school is a wise investment.

I want to share with you few questions you should ask yourself as you are debating this question.

 
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1) Will That Graduate Degree Really Help Me Advance?

Not all degrees are made equal. The earning premium for graduate degree is different for every specialty and the difference can be pretty drastic in certain cases.

According to Georgetown’s Center of Education and the Workspace, STEM (science, technology, engineering, and mathematics), health and business majors are the highest paying majors. Entry level annual average salary start at $37,000 and earn on average of $65,000 over the course of a recipient’s career.

In contrast, majors in the education, arts and social work fields are some of the the lowest paying - early childhood education ($39,000); human services and community organization ($41,000); studio arts, social work, teacher education, and visual and performing arts ($42,000); theology and religious vocations, and elementary education ($43,000); drama and theater arts and family and community service ($45,000).

It’s therefore no surprise that engineering majors or health professionals who go on to get graduate degrees in their field see the biggest increase in their earnings.

Image Courtesy of Georgetown’s Center of Education and the Workspace

Image Courtesy of Georgetown’s Center of Education and the Workspace

Therefore you must ask yourself the hard question. Will going back to school help me advance? Will it help me reach my goals if I want to increase my earnings?

2) How Much Debt Am I Willing to Take On?

Schools cost money. And it seems to cost more today than it did years ago. If you still have student loans from your undergraduate days, know that any money you borrow for graduate school just get added to the pile. After having spent over three years paying back student loans after my MBA, I can tell you student loans are no fun.

When I initially took out student loans, I foolishly treated it like monopoly money. I didn’t understand the gravity of what I was signing. It wasn’t until later when I had to send my hard earned cash every to the bank every month I felt the true weight my of decision.

If possible avoid student loans. However, if circumstances does not afford you that luxury, here are few tips:

  • There are two kinds of federal loans available to graduate students - The Direct Loan and the Grad PLUS loan

  • Start with the Direct Loan program. This allows you to borrow up to $20,500 annually and $40,500 in you are attending medical school. It also has the lowest interest rate of all graduate school loan options.

  • If that is not enough, than consider the Grad PLUS Loan. You can use this loan to fund the entire cost of your education such ash tuition, books and living cost. Know that the interest rates are higher than Direct Loans.

  • Avoid private loans at all cost. They not only come with higher interest rates, but are much less forgiving and flexible than the federal government. If the graduate program cost requires you to need private loan, I want to challenge you to think real hard about the decision to go back to school.

3) Could Your Employer Help With School Cost?

Many employers offer programs to help out with education costs. Of course nothing comes for free, so often employers will require you to stay with the company for an additional number of years in exchange for paying the program. This is a great option if you want to avoid student debt.

My wife recently completed her Masters in Nurse Practitioner with $0 out of pocket cost through this strategy. After having worked as a Registered Nurse at her current hospital for 6 years, she decided she wanted to go back to school to advance her career. Thankfully the hospital had a program that covered 100% of her tuition and other costs in exchange for a 3 year contract at the completion of the program. The superwoman that she is, she grinded through two and a half years of graduate school, full time work and the raising our 2nd child (our daughter was born 5 months prior to her starting her program).

With this option, we were able to save approximately $40k in tuition ($20k), books ($1k) and paid study days ($18k). Most employers offer some form of tuition reimbursement so I challenge you to research your options.

Are you thinking about graduate school? What are you looking to accomplish through the degree? How are you planning to fund it?