Paying for 'dream' -- house and car cost extra

Eric Skibbe could buy a 2-bedroom, 1.5 bath house in a solid Detroit neighborhood for $60,000. He could buy a nice Ford sedan for $19,500. He could fly from Detroit Metro to Orlando, Fla., this winter for $300, round trip. All these elements of what many would consider the good life could be had for less than $100,000.

Skibbe has spent $75,000 thus far -- but he doesn't have the house, the sedan or the Florida trip. The $75,000, rather, is the student loan debt he has built up while obtaining his college degree -- a degree increasingly vital for a chance at prosperity in the 21st century economy.

 Tips for limiting student loan debt 
 Borrow federal first.vFederal loans are cheaper, more available and have better repayment terms than private student loans. The unsubsidized Stafford and PLUS loans are available without regard to financial need, so you don't have to be poor to qualify.

Live like a student while you are in school so you don't have to live like a student after you graduate. Do not borrow more for your entire education than your expected starting salary after you graduate. Otherwise you will find it difficult to repay the debt and will be at higher risk of default.

If you are borrowing more than $10,000 per year for college, switch to a less expensive school.

Submit the Free Application for Federal Student Aid (FAFSA) at www.fafsa.ed.gov to apply for federal and state grants and search the Fastweb scholarshipsdatabase to find scholarships for which you are eligible. Every dollar you get in grants and scholarships is a dollar less you will need to borrow.

For more tips, go to http://www.fastweb.com/financial-aid/articles/2613-kantros-tips-to-save-you-money

Source: www.finaid.org

 

Skibbe, 24, is a Wayne State University graduate student with a major in public relations. Unable to find employment in his chosen field, he works part-time for a major Michigan retailer and makes slightly above minimum wage. He would like full-time hours, but said his employers will only give him between 30-35 hours per week: "They keep me part-time so they don’t have to give me full-time benefits.”

To help make ends meet, he lives with his parents, who are on a fixed income, because he did not qualify for enough financial aid to cover housing expenses, on or off campus. “As a student, it makes me feel left out because if I want to do something on a day when I don’t have a class, I can’t drive down there because I don’t have the extra money for gas," Skibbe said.

In an effort to jump-start his career, Skibbe elected to go back to school to earn his master's. He hopes his efforts will open more career doors, but, at the same time, he realizes he is digging himself deeper into debt.

In 2010, for the first time, student loan debt topped credit card debt, according to USA Today. It was expected to surpass $1 trillion in 2011. As a result, students embarking on new careers are struggling to repay their debt.

In a push to quell student debt concerns, President Barack Obama announced an initiative to help ease financial burden. The plan will reduce student monthly payments to 10 percent of their income instead of 15 percent, with all debt forgiven after 20 years. It is expected to help about 1.6 million students in debt. In addition, the plan also will allow graduates to consolidate their loans.

But, David Ladd, an associate director of financial aid at Western Michigan University in Kalamazoo, said the plan “is not a huge deal for most students,” because it is income-contingent. In other words, he said, if you make a certain amount of income, you are not eligible for the program. The ½ percent rate reduction on consolidation could help, he said, but “students will not enroll in school because of the change in the program. It’s not that different.”

Obama’s initiative comes as students prepare to enter a tough job market. In a recent study by the John J. Heldrich Center for Workforce Development at Rutgers University, 90 percent of 2006-07 graduates found work, with a medium income of $30,000. However, that percentage dropped to 56 percent in 2010, with graduates who found work earning a medium income of just $27,000.

Currently, a graduate must begin loan repayment, according to www.studentaid.ed.gov, after a six-month grace period. Added to that are the interest rates and loan fees. A typical undergraduate student at Western Michigan University, Ladd said, will borrow between $18,000-$20,000. “It’s like a car loan,” he said, “except they pay over 10 years.”

And if a student files for bankruptcy, the loan must be repaid unless “undue hardship” is proven in a court of law. Two bills have been introduced, the Fairness for Struggling Students Act of 2011 and the Private Student Loan Bankruptcy Fairness Act of 2011, that would allow a student to discharge their loan in bankruptcy court.

In the meantime, after graduation, Skibbe sees himself working for a nonprofit helping to get voices of under-represented companies heard. He is keenly aware of the sacrifices it takes to obtain that all important degree.

He wants the American Dream “with the home in the suburbs, a white picket fence and 2.5 kids,” but also knows that -- at least for now -- that dream may have to wait awhile:

“The American Dream does not happen overnight anymore. It’s all about being financially smart. People are not looking at the future, they are looking at the now. The American Dream is possible, but you might have to wait before you reap the reward.”

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Comments

Larry
Thu, 01/12/2012 - 12:28pm
Not very bright this one! It is simple - you look at what average starting salaries are with the major you plan to earn in college along with job prospects and determine if there is even a remote chance of paying off a large amount of debt. If not - don't borrow. Work your way through school. A graduate with a nuclear engineering degree may expect to start in the $100,000 range and thus pay off $75,000 in three or four years. There are few of these folks. There are many PR majors as it is easy so the pay is low and the competition for jobs great. How much simpler can this thought process be.
Stacey W.
Fri, 01/13/2012 - 9:55am
Salary shouldn't be the deciding factor when choosing a major in college, and your career. You should do what you enjoy, what you have a passion for and what won't seem like work everyday! I would rather make less doing what I love than make more and hate my job. Wouldn't you?