Students are being sent off to college with some ideas that just aren't true. Among them are that a college degree will lead to a fulfilling career and that college is all about the experience. And then there are ideas about debt.
Some students are encouraged to get credit cards while others are told that taking out loans is a good idea. After all, that fulfilling career will provide tons of money to pay off the "good debt" an education comes with. But these concepts are myths as well along with the idea that everyone takes loans out to go to school, and that the loans are great for building credit.
Student Loans are Good Debt
All debts being relative, student loans are relatively good, but do not be mistaken; a loan is a loan, and it will be called upon until satisfied. Worse yet, federal student loans will not be forgiven in bankruptcy unlike the SkyMiles credit card that gets defaulted on.
Going to school is much like other things. If one cannot afford it, then it should be purchased a little at a time or when the cash is available. An exception to this rule would be in education that is necessary to maintain certification in one's occupation, but such courses should be planned for rather than paid for with borrowed money. If borrowed money is the only option, then a career change may be in order. There are exceptions, but not as many as there are people borrowing to get an education.
Myth: Everyone who Goes to College Takes out Loans
This is absolutely untrue. While some people come from wealthy families, many others, like the author of this article and his wife, are going through school debt-free. This is possible by using the GI Bill and tuition assistance from work.
Putting off Payments Until Graduation is Better
While in school, people do not have to pay their federal student loans down, and they do not accrue interest. This, however, does not make them better than other loans. If anything, it could make them worse. Students are not asked to pay anything while thousands pile upon thousands, and for a student attending a school like Villanova University, it could easily exceed $100,000. And if that degree is in French, the same amount of money could have been spent actually living in France or Canada, where one can learn more than how to get through pleasant conversations.
If debts do mount, it is best to take action against them by working and making payments, even if not in full. The reason for this is because on the other side of debt is prosperity.
Student Loans are Great for Your Financial Future
For those who wish to build credit, it can be done by having a student loan, but it can also be done by having a credit card account that has no balance or a car loan that is paid off. The real indicator of one's financial future is having cash and capital. Money talks, and credit is the stuff that walks.
After all, what is more valuable, $1,000 in cash on hand, or a $1,000 line of credit? To some people, they look the same, and that is a very scary concept because borrowing is not the same as saving, and in not understanding this concept, consumers may find that they think cash and credit have the same value, and that credit has attributes that trump actual money.
While these ideas are common, they are not true. Many people do not borrow to go to college, and the debt to get a degree is not great. It is only relatively great, and that is because there are payday loans at rates in the triple digits. The best thing for a person's financial future is to live debt-free, keeping cash, and building wealth, not borrowing money that will leave him beholden to a lender for years to come.
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