College is the last care free step before real life begins, or at least it should be. Students should be able to go to sleep each night with the only pressing responsibility being the English exam tomorrow morning. But what isn’t talked about much is the debt that is incurred to accomplish this.
This hangs over many college graduates. According to FinAid.com, the median cumulative debt for a four-year graduate was right at $20,000, with a quarter of them borrowing more than $30,000.
You’re heading into scary territory. At current average student loan interest rates, you’ll be paying about $315 each month in interest alone. And, depending on your loan, those rates may rise.
So how do you escape the horror of debt doom? The key is to quit living like a student. It’s too tempting to spend as much money as a student can borrow. Students live as if a loan were income.
No rational financial adviser would suggest that you create a spending plan that treated borrowing as income. Yet, that’s exactly how most college students budget. It’s as if they can pretend the loans don’t exist until they graduate and go to work in the “real world.”
Instead, you should live like you’ve already finished school but haven’t found a high paying job yet (a situation facing many recent graduates). Act as if you’re making only $20k a year — that’s $1,666 per month before taxes.
That means that you can’t afford to live in a one-bedroom apartment alone. Find a roommate. Professional clothing purchases should be put on hold until you have a high paying job. And, even then you need to shop sales, consignment and thrift stores.
Business meetings and any other expenses should be kept to a bare minimum — certainly until you’re able to score that big job and repay some debt. Any opportunity to reduce expenses should be taken.
The best thing that you can do is to keep the loan total from ballooning to $40,000. If you could keep the balance at $25,000, you would reduce your payments by a little over $100 per month.
The good news is that you have two years before you have to begin paying. So it’s not inevitable that you’ll owe $40,000. If you begin to adjust your spending now, your life will be much easier in a few years.
The alternative? Well, there’s always our friend, Vincent, and the organ fugue … Is that the sound of debt demons I hear cackling in the background???