College Loan Dangers and How to Avoid Them


Student loans are helpful in paying for college education, but they are still loans that can put any student - who eventually graduates or not - in hounding debt problems.

According to John Wasik, author of The Debt-Free Degree, experts in personal finance say people should know the difference between "good" and "bad" debt, before taking out any loan. "Good" debts, such as mortgages, give borrowers the option to deduct portions of interest. "Bad" debts, such as credit card debts, can't be deducted and could lead debtors into a "financial black hole" of sorts.

College loans are even worse than credit card debt, most especially when the student doesn't graduate, or finds himself with an unprofitable degree. Sadly, many students take out loans in the hopes of getting gainful employment, but end up jobless and with no way to repay student debt.

In addition, college loans will hound borrowers for decades, even in bankruptcy, Wasik says. If students don't pay off their loans, they will end up retired and in debt.

While college loans do help students acquire degrees that might lead to a successful career and a huge paycheck, care should be given so that the debt incurred will lead to profitable ventures later on, making repayments easier, and the loan worth it.

Here are some ideas to consider, according to Wasik.

Consider low-cost degrees and/or colleges

There are some colleges that offer degrees at low to no cost. These may be community or commuter colleges, but they will provide more affordable higher education. Do avoid for-profit colleges if possible.

Calculate future monthly repayments

If college loans are needed, consider calculating the amount you'll need to borrow, and compare it with the amount you need to repay. Use online calculators to determine monthly repayments, principal and interest - as well as the period of time where repayments have to be made.

Check possible future earnings

PayScale provides helpful information regarding possible earnings a degree could have. Future earnings should be compared to possible future debt repayment. If the amount needed to repay debts are high enough to drain earnings on a monthly basis, be honest and look for other options: a different degree, college, or funding option. Consider applying for grants, scholarships, or part-time gigs while in college.

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