Borrow for College?
Pay Off Student Loan Debt
Troublesome Student Loans
Borrow for School?
DD is thinking very strongly of attending Massage Therapy School out of state. She has money saved up but not enough. She will probably qualify for FAFSA. Would you recommend her taking out a loan to attend or just saving up the necessary funds? She makes about $10 an hour as a checker. She will make approximately $30+ an hour as a licensed massage therapist, and the school she wants to attend has an excellent placement record. I will not co-sign on any loan. We don't have money to help currently. She would have approximately half of the money if she started in October and $4,000 more if she started in January. It's crazy, but the more she saves the less help with loans and grants she would get. Love to hear your perspective on this!
I would encourage her to save and start school debt-free. As a currently licensed massage therapist, I would recommend she look much more closely at that hourly wage she's been promised. Massage is a wonderful, healing career, but I have found that two dynamics come into play if she is working either in a medical or spa environment.
In a medical environment, she is likely to make far less than the quoted $30 per hour. (Around here, it's about $10 to $12/hr.) Generally, the work entails other tasks along with massage and that's fine, but it's not paid as well.
In the spa environment where she really will make that hourly wage, she will only be paid that rate when she has her hands on a client. The rest of the time when she is not actually working on a client is unpaid, and she will be expected to wait around for the next appointment or walk-in client. This is standard in the spa massage industry.
Another alternative is self-employment, but the overhead involved in self-employment is huge. Rent alone is steep and then you must have regular advertisement in place to get people on your table.
I don't want to sound discouraging. I love massage and wouldn't trade my experiences for anything, but please ask her to take this into consideration before she thinks that a school loan will be easy to pay off with that $30 per hour!
Carol in FL
Your Education Is Forever
Though it seems logical to wait and have that extra money, I say go for it now. Borrowing money will not be that big of a deal when considering the difference in the amount of money she will be making. Frequently plans get disrupted when they are put off. You have the education for the rest of your life, so it is worth whatever investment you have to make.
Stay Free from the Bondage of Debt
My advice is a very firm "NO"! Do not borrow for school. The additional time it takes to save up another $4000 would be so worth it to DD. It is a great burden to have a loan to pay off when a person finishes their training course. It could take years to repay, and if a person falls behind, the consequences are serious and could damage the credit score of this person.
What could be more freeing than to finish a course and be free to go wherever a person wants to go with no financial obligations hanging over his/her head, keeping him/her in bondage for a few more years? It takes less time to save up the money than it takes to pay it off with interest. And in the time it takes to pay it off, there will be other things that come up that the money may be needed to cover. Save it up and then go for it!
Tuition Rates Are on the Rise
Your daughter should definitely begin school as soon as possible. Student loans have such a low interest rate and a variety of repayment options to fit the borrower. And yes, she would be penalized for any money she has in a checking/savings account. Besides, look at how the tuition rates rise each year. I went through the same thing with my son. He decided to go ahead and just apply for the loans. We don't qualify for any aid, but unfortunately, we also don't have any spare money for his tuition.
Save Extra Cash and Pay Up Front
Don't do it! Save the money and pay for it. I made the mistake of taking loans out for school, and with the interest rates, it seems like I will be paying them off forever. I suggest that she find a way to make some extra cash, such as getting a second job or finding a better paying day job. Does she have any old "junk" laying around that she could sell to bring in some extra cash? Do anything to avoid school loans because she will be paying them off for a long time. And if she doesn't find a job as a massage therapist, she will kick herself every time she writes out a loan payment.
Student Loans in Detail
Having done this for both undergrad and graduate school myself (just last night, as a matter of fact), let me give you some information. The government does not give money through FAFSA. FAFSA is only the form that the student fills out for the government to decide if/how much/what type of aid to supply. This is done by calculating the income and savings of the student/family (I'll explain below) and then determining how much money the student/family should be able to pay. You take the amount that the student should be able to pay from the costs of attending the school. The remainder is what the government will say you are eligible for.
Once you send in that form, you will find out what aid you qualify for. There are three basic types of aid for students:
- Subsidized loans
- Unsubsidized loans
- PLUS/Graduate loans
Grants are completely need-based, meaning the poorer the government thinks you are, the more likely you are to qualify for these. These are free money because they do not need to be repaid. However, there isn't much of this.
Subsidized loans are loans that have to be paid back, but the nice thing is that the government will pay the interest for the loans while the student is in school. (The principal and interest after leaving school are the student's responsibility.) There are set amounts of money that students will be eligible for. (I don't know about anything else, but as a grad student, I can get a maximum of $8,500 per school year in subsidized loans.)
Unsubsidized loans are loans that do not get the government paying for interest during the school years. The student can either pay interest while in school (it's not much) or allow the interest to be capitalized into the loan upon graduation. There is still a fixed amount you can get per year. For graduate students, it's a maximum of $12,000 a year.
PLUS/Graduate loans are loans that either parents take out on the student's behalf or graduate students can take out. These are private loans but are still registered through a government program. I know you said you wouldn't take out any money on your daughter's behalf, but you may consider it if necessary. Interest rates are usually lower. My parents did this for me in undergrad and then I paid the loan back when I graduated. It worked out very well for both of us because I paid it off quicker than necessary (3 years instead of 10), so their credit score got a bump and I got the money. You know if you're comfortable with this, but you shouldn't rule it out without knowing all the facts. It used to be that interest rates were variable, but they're now fixed.
Here are a few things to consider in deciding whether to take out loans:
- How much is the student expected to put in? The more money a student has, the less financial aid she will qualify for. Therefore, the more savings she has, the less aid she'll get. (And the less attractive it will be, probably unsubsidized loans.) This is especially important if your daughter is still young or considering getting married. If your daughter is under 24, it is assumed that parents will be helping with expenses. Therefore, your income will be considered in the amount that she's expected to pay. If you have a relatively high income level, she may not be eligible for aid at all. If you will not be providing any financial support, she can petition to be considered an Independent Student and not have your aid considered. That means you can't claim her on your taxes, she can't live with you, etc. You would need to check all the rules out before deciding whether to do that. The same thing is true with marriage. If she's married, her spouse's income will be considered in her aid package. It was such a blow to my financial aid for me to get married that my fiance and I have decided to delay marriage until I graduate. (As an unemployed graduate student, I get all the "good" financial aid. However, my fiance works and that would prevent me from getting that aid. I figure we'll save several thousand dollars this way.)
- How long is the schooling? The longer the school, the more loans you'll probably take out.
- How much does the schooling really cost? Don't forget living expenses, lab fees, books, tuition, insurance, etc. Of course, there will need to be an emergency cushion for getting sick, car breaking down, etc. When I went to school out of state, I made sure I had a credit card with enough credit that I could get an emergency plane ticket home if necessary because most airlines don't take checks.
- You say that the graduates make $30 per hour. That's great, but how many hours do they work? What's an average yearly salary for graduates? Can she afford loan repayment on that?
Every situation is different. I don't think student debt is all bad. I know I'm in a very different situation, but I'm getting my law degree. I figure I will be making $20,000 more after I graduate than what I was making before I went to school. I will probably come out of school with $20K to $30K in debt. Because I'm frugal, I can pay that off in a year or two because I can continue living like I am. In two years, I'll have an extra $20K to $30K a year. It would have taken me approximately three to four years to save that amount of money on my prior income. Therefore, I will actually have a larger payoff by taking out the loan because I'll be earning more later than the cost of the loan, and having the degree means I'm building my career path so there's even more payoffs after that.
You should speak to the school's financial aid office about what your daughter's options are. They should be able to estimate how much she will be expected to pay and what your likely options are.
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