Hi, friends! We hope you have been enjoying our blog thus far. We are enjoying the process of connecting with you on this new platform. Today, we would like to feature another one of our all-star guest bloggers. We would like to introduce Ms. Rikki Grooms, Founder and author of the exciting blog Personal Finance 4 The People.
Those are my student loan debt amounts, but they don’t have to be yours. When I was applying to college no one sat me down to let me know that after college and grad school I would have to pay back all the “free money” even if I didn’t have a job. I filled out all the forms put in front of me and signed my name and initialed all the right places without knowing what I was getting myself into. I wish someone would have told me how these loans would affect me for years to come.
This is how I wish the conversation would have gone…
Wise One: OK, Rikki, you want to go to a private college, out of state, correct?
Rikki: Yup! They sent me these forms to fill out to pay for school, AND I don’t have to pay anything right now!
Wise One: You realize that ONE DAY, you will have to pay this money back, right?
Rikki: Yeah, but by then I’m going to have a great job, so I’m not worried.
Wise One: But Rikki, what if that great job isn’t there and you have to take a job just to pay your bills (including that student loan debt) and the economy tanks right after you graduate? Maybe you should look into other options to pay for school?
Rikki: Hmmm, I didn’t think about that.
So, here I am with this great education, an OK job, and enough student loan debt equivalent to the cost of a house in my hometown. What are my choices now? Recently, there has been a lot in the news about student loans, probably the one of the most important topics for my generation and younger. Why student loans, you ask? Student loans are the next big “thing” that could send our country further into recession. Just like the banking, housing, and automotive industries, student loan defaults are increasing because the number of people who can’t pay their student loans is increasing. Students are graduating with more debt than previous graduates; add the equation a struggling economy and fewer jobs available and you have a recipe for disaster.
President Obama unveiled a plan to help lessen the student loan pain. This plan has two significant changes for federally funded loans. First, the Special Direct Consolidation Loans that affects those who have left school already. To qualify for this option you have to have loans from the Department of Education – under their direct loan program or have loans by a bank/lender that meets the requirements for the Federal Family Education Loan Program. This option will knock a quarter of a percent off your interest rate (every little bit helps). The second change is called “Pay As You Earn” or a new version of the existing Income Based Repayment (IRB). This will apply to roughly 1.6 million students CURRENTLY in school. IBR makes sure your loan payments are no more than 15% of your income and are forgiven after 25 years. Pay as you earn makes sure your payments are no more than 10% of your income and forgives loans after 20 years.
Aside from these programs fund your collegiate expenses. One option is called 529 Savings Plan. A 529 Savings Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future educational costs. Another alternative that can offer some savings is attending local community colleges then transferring to a four year university later. Additionally, attending public colleges within your home state of residence can offer big savings if you qualify for “in state tuition”. The final option is working your way through college to lessen or avoid student loans. Let’s think about the positives of working through college (it may take longer, but you can do it):
- You gain valuable work experience and gain contacts you can use later in life.
- You can try out several careers. Imagine how many times the average student change their major (2-3 times for the average student). You get to find your chosen career faster, gain valuable work experience, and save yourself time and the headache of struggling to find your niche.
- You take financial pressure off your parents or off yourself.
- Learn responsibilities your peers won’t learn until after college.
While working, you may qualify for your company’s tuition reimbursement program, if they offer it. So your job would be paying for your schooling, not you. You will learn to be financially responsible, if you choose to be responsible, and learn to be financially independent earlier. Being financially independent allows you to control more aspects of your life. You wouldn’t be dependent on your parents or anyone else. Who knows, you might be able to teach your parents a thing or two.
Managing your student loans are just one aspect of personal finance. Personal finance involves saving, budgeting, debt management and reduction, planning for goals and retirement. If these were taught in school, more people would have a better financial situation) But the great part is what you aren’t taught; you can teach yourself or find someone to teach you. You can stop the cycle of poverty and poor financial decisions of your parents, their parents, and so on and place yourself in the best position for a successful future.
Remember, no one cares about YOUR money (and your future) like YOU do. Take control over everything from budgeting to student loans to retirement.
Financial independence is waiting…
About the Author: Rikki Grooms is a native of West Virginia and currently resides outside of Washington D.C. She earned her degrees in Sociology from Mary Baldwin College where she played basketball and George Mason University where she learned… yet more Sociology. In her spare time she likes watching sports and running her Personal Finance business and blog Personal Finance 4 The People http://personalfinance4thepeople.blogspot.com/. Personal Finance 4 The People focuses on helping individuals reach their financial independence through education and developing a personal financial plan tailored towards their individual needs. Everything Personal Finance 4 The People embodies begins with the motto: Plan Your Work! Work your Plan!
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