Should You Take Out a Loan for College?

Question from Katie: I'm in college and pay about $16,000 per year. I have a job and have somehow managed to avoid taking out loans (so far), but it has been hard! I have to have a very tight budget, which is fine, but it's hard because I have never had to really budget before. I'm thinking about taking out a loan for school, just so that I could work less and focus more on school, but I hate the idea of having debt.

I guess that I'm basically wondering: 1. What you would do in my situation? 2. What you did do (if you were in college)? Do you wish that you had made another choice?

First of all, Katie, pat yourself on the back for not giving into what the world tells you about student loans. The fact that you hate debt and don't want to take out a student loan is a great start!

Second, your reasoning for wanting to take out a student loan is also a noble one. "To focus more on school" is a great reason to want to work less.

Here's a brief background of what our college finances looked like:

How We Paid for College

  1. I was never taught about finances, debt or student loans before going to college. I didn't expect my parents to pay for college, but didn't have any problem taking out loans to pay for it. I was simply ill-informed. My parents paid for what they could and I took out a loan for the rest. I had various part-time jobs throughout my college career, but they were simply for living expenses (food, clothing, gas, fun money, engagement ring, etc...)
  2. Kelsey's parents paid for her college education. It's something they wanted to do for her and we were blessed because of this. She didn't have a job as they stated "school was her job," and she was a 4.0 student because of it. (She's really smart.)

To answer your question: If I was in your situation and could avoid taking out a student loan, I would. But something to keep in mind would be that you usually don't have to start paying back your student loan until six months after graduation. If you land a job after graduating--which you likely would given your determination and hard work ethic--I would think you could pay a lot of the loan back before you had to.

In our situation, we really didn't know any better when we got married. We assumed we would slowly pay off my student loans over the next 10-15 years, and we were OK with that. Once we went through Financial Peace University we got really intense and it took us 23 months and a second job to pay off around $30,000 in student loan debt.

If you decide to take out a student loan, make sure you plan on getting it paid off as quickly as possible after graduation, and you still be way further ahead than most. Coming out of college with a humble attitude and living well below your means will get you a big jump-start in the real world. A financial mess that should have taken us one year out of college to clean up took us five years because of even more poor financial decisions that we made.

One more piece of advise about focusing more on school: I'm not sure what your major is, but in most cases after you get your first job out of college, your GPA will not matter in the real world. Companies want to know that you are a hard worker, can be efficient, get along with the team you will be working with and make your position more valuable than it is currently. For example: When Kelsey interviewed for her first job out of college, her boss questioned why she was a 4.0 student. She wondered if she had the necessary social skills the job would require. A 4.0 student might do nothing but study and not be able to relate to other people.

Now I'm just rambling...

Short Answers to Your Questions:

  1. If your need to focus more on your studies requires you to work less, take out a very small student loan. Could you take out only $5,000? That would free up $416 per month and at $10/hour, for example, should free up about 10 hours a week. Maybe you need less time/loan than that? Play with the numbers before making a final decision.
  2. If I would have been more informed, I might have gone through college differently. But the struggles we have gone through to get where we are have taught us a lot. I just wish I would have known then what I know now (as the saying goes).

I'm not too concerned with your decision either way. You seem to have a very good sense of your financial responsibilities and a longing to be debt-free, so either way you will handle the situation with the best of your abilities.

Any other advise for Katie? Anyone else in a similar situation?