Wise Planning May Help Avoid Massive College Debt
by Gordon H. Wadsworth
In today's climate,
a two-year or four-year college degree is generally considered essential in order
to achieve economic success. In fact, many companies today require new employees
to hold at least a Master's degree, with some emphasis also placed on Doctoral
candidates. Regardless of your academic prowess, there will always be the question
of how to pay for the education. As a result, many students resort to borrowing
most of the funds from the government in the form of student loans.
By considering your overall interests, aptitude and economic situation, you can find a college that best fits your career objective. And, if you're flexible in choosing a college, you can save thousands of dollars in government loans.
Many students are not aware that they are in competition nationally with students who receive concentrated SAT and ACT exam preparation by qualified tutors. Yet most of America's top colleges and universities today base their admissions decision on your SAT and SAT II scores with some emphasis on your application essay and community service record. These same schools often have institutional funds available to top candidates and may offer special incentive or tuition scholarships to students who they feel will add credibility and versatility to their student body. (For assistance in reaching your maximum SAT score, see The Princeton Review or the Kaplan Educational Center)
If you're already in college, the key to survival is money management. As the role shifts to the student to pay for college, some analysts predict student borrowing may reach $50 billion per year by 2002 - which only magnifies the need for wise money management once you're enrolled.
Financial Aid
Another question
you may ask is, "Who qualifies for college financial aid?" Categorically,
everyone qualifies. The Federal Stafford Loan, for example, is available to every
student regardless of family income and is frequently promoted as a low-cost government
student loan. However, it is anything but "low-cost." In fact, it is
outrageously expensive and can lead students from financial euphoria into financial
bondage. "Student loans themselves are not the problem," says Larry
Burkett of Crown Financial Ministries. "The problem is that students often
borrow in excess of what they need to get a college education. A student loan
should only be considered as a 'last resort.'"
Unlike the Stafford Loan, a Federal Perkins Loan is one of the most sought-after financial aid programs available. If you qualify, you may borrow up to $20,000 as an undergraduate and another $20,000 for grad school. Best of all, there is no origination fee and Uncle Sam pays the interest while you're in school.
What makes the Perkins Loan so popular is the low interest rate of only 5% compared to over 8% for the Stafford Loan and 9% for the Parent Loan, plus the shameful 4% origination fee Uncle Sam charges for every dollar borrowed. What's more, the Perkins Loan may be service-cancelable, in effect becoming a cash grant. Sounds good, doesn't it?
Some years ago, two sisters each attended the same college, one majoring in communications, the other in education. Based on parental income, both students qualified for a Federal Perkins Loan. The older sister graduated and became a flight attendant for Delta Air Lines. After a nine-month grace period, her Perkins Loan became due and she dutifully paid the lender fifty dollars each month year after year.
Her sister, on the other hand, graduated with a teaching credential that allowed her to work with students who were diagnosed with severe behavior problems. Nine months after she graduated, her Perkins Loan also became due, but since she chose to teach special education in private and public schools for five years, 100% of her student loan was canceled, including all finance charges.
For you to survive financially for four or five years of college, you'll need a well-defined spending plan or budget to meet your needs without going into debt. Much like a road map, a spending plan will help you see where you're going as well as where you've been. "There is no magic in a budget; it is only a written expression of what you must do to be a good steward," writes Burkett.
There are three key ingredients that must be part of your college budget in order for it to work. First, it must be flexible. It must also be realistic and provide for variables like clothes, food, recreation, dentists, and so forth. And finally, "Action is required to make it work, and you may need to make sacrifices to live within your budget," adds Burkett.
Credit Cards
One of the greatest threats to maintaining your budget will be your purse or
pocket full of credit cards. The use of credit cards for gasoline, clothes and
nice restaurants is not wrong in itself. It is only the misuse of credit cards
that will eventually come back to haunt you.
In their zeal to capture the college market, credit card companies spend millions of dollars each year promoting their cards on campus. In many cases, all that is required by the banks is your student ID.
Robert Bugai, President of the New Jersey based College Marketing Intelligence, notes that some students fill out credit card applications as soon as they arrive on campus. "The financial services industry outspends all others when it comes to campus promotions," said Bugai. "Bookstores often have a table set up with credit card applications and a choice of free gifts. The free gifts are used as a hook to get students to apply."
In her book, The Ultimate Credit Handbook, author and speaker Gerri Detweiler says, "A credit card is nothing more than a means of accessing a personal loan, but because of the glitzy advertising, few people think of a card that way.
Instead we think of credit cards as a means of convenience, a shortcut to the 'good life,' symbols of financial success, or even an extension of our income!"
Students often find the ease of acquiring credit cards is directly linked to overspending. As a result, it doesn't take long to get caught in the credit card trap. One student began collecting credit cards as a status symbol. By his 20th birthday, he had amassed some 18 gasoline and department store cards, 5 Visa Gold Cards, 5 MasterCards, 1 American Express Card and over $10,000 of debt. As the pressure for payment increased, he began to borrow funds from one card in order to pay the minimum on another. He had become a slave to the lenders; he was caught in the trap.
Scholarships
The big word in everyone's vocabulary is "scholarships." Who
qualifies and who doesn't? The truth is, you don't have to be an academic guru
to qualify for a scholarship. In fact, even if you don't qualify as a freshman,
you may well receive a scholarship later based on your grades. Although one
student took the SAT several times in hopes of improving her score, she simply
could not get above an 1140 on her tests and failed to qualify for scholarships
as an incoming student. However, by the time she was a junior at the university,
she was recognized for her continuous 4.0 grade status and received a full tuition
scholarship from the College of Human Sciences for both her 4th and 5th years
in school.
Unfortunately, there are scam artists operating nationwide who profess to offer scholarship assistance to anyone who plunks down their money. According to FTC sources, the scam artists often use high-pressure sales pitches on unsuspecting students and parents at seminars where they are required to pay immediately or risk losing valuable scholarships.
If you're approached by anyone offering a special grant or scholarship, here are several suggestions that may keep you from losing hundreds of dollars:
1) Take your time and avoid getting pressured into paying at a seminar.
2) Thoroughly investigate the company that's making the offer.
3) Be wary of success stories or testimonials of extraordinary success.
4) Don't believe there are millions of dollars that go unused every year.
5) Get everything in writing.
6) Listen for these telltale lines:
a. "The scholarship is guaranteed or your money back."
b. "You can't get this information anywhere else."
c. "I just need your credit card to hold the scholarship."
d. "We'll do all the work for you."
e. "You've been selected by a national foundation to receive a college scholarship."
f. "You're a finalist" (in a contest you never entered).
The nationally recognized scholarship search companies found in Cost Effective College offer to search their data file to find a "match" between your interest and talents and the donor offering the award, and their service is free.
"College scholarships are not just for valedictorians," writes Charlotte Thomas, Career and Education Editor for Petersons. "They're available for every student willing to diligently seek out the scholarships and apply."
Instead of offering tuition discounts, some schools provide institutional scholarships. One student received a "Leadership Scholarship" after it was learned by the Financial Aid Administrator that her parents could not afford the tuition at a private Christian college. No matter how the funds are distributed or what they are called, albeit a discount or scholarship, the award still serves to minimize student debt.
If you're seeking a scholarship, look first in your own community before engaging in national competition. Many organizations such as the Elks Club, Kiwanis, Jaycees, Lions Club, American Legion, YMCA, 4-H and Chamber of Commerce provide scholarships to local members or family members. National programs include the Chick-fil-A Leadership Scholarship, the Duracell/NSTA Invention Challenge, the Coca-Cola Scholars Program, the Siemens Westinghouse Science and Technology Competition and the Elks Most Valuable Student competition.
Other Options
What about the student who already has a ton of student loans? If that's
you, take heart. Nowhere in Scripture does it say that it's a sin to accept
student loans. What is does say is this: "Just as the rich rule the poor,
so the borrower is servant to the lender." (Prov. 22:7)
Basically, what that means is that you need to be diligent in your pursuit to find other ways to finance your education. If your school has a co-op program, have you talked with the director to see if you qualify? Are you presently working on campus? Have you thought about retiring your car and all the costs associated with it until graduation? Have you considered Uncle Sam's super military options?
In Cost Effective College, an entire chapter is devoted to the college funding programs in the military - unmatched anywhere in the private sector. In some cases, student loans up to $20,000 may be paid back while a student serves in the Army Reserve or the National Guard.
The well-promoted Army College Fund is now at $50,000, which can also go a long way in helping students stay out of debt. In addition to the five service academies that offer a "free" college education, there are also two, three and four-year ROTC scholarships available at both secular and Christian colleges and universities across the country.
Looking for an exciting mission field? Try this. If you've already graduated, or about to graduate, the Army will pay back up to $65,000 of your student loans for a three-year commitment, plus start you out with the rank of a junior sergeant. After 3 years in the military, you'll be an experience missionary and debt free.
In Summary
By meeting all financial aid deadlines, setting up a flexible spending
plan, eliminating impulsive buying and avoiding excessive high interest student
loans, you can graduate from the college or university of your choice without
financial bondage.
Gordon H. Wadsworth is the author of Cost Effective College, published by Moody Press.
Unless otherwise noted, all materials on the urbana.org web site are Copyright InterVarsity Christian Fellowship / USA. All rights reserved.
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