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An Introduction to Student Loans

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An Introduction to Student LoansThis is the first of a four article series on student loans.  The other articles will cover private student loans, federal student loans, and choosing between private and federal loans.

The Benefits of an Education

An education can be a very worthwhile investment in a student’s future and a very wise choice.  Studies have shown that as education goes up, so too, on average, do future earnings and quality of life.  College graduates tend to have much lower unemployment than high school graduates.  On average, they also earn more than a million dollars more over their lifetimes.  Obtaining an education can also bring other intangible benefits, such as an increased desire to learn or confidence.

Saving for College is Ideal

I know from personal experience that with a lot of planning, sacrifice, and hard work, some students are able to graduate from college completely debt free.  Saving for college is obviously preferable to taking out student loans.  However, for various reasons, that is not always possible, and many students must take out student loans in order to fill the gap between the cost of attending college and the financial aid they receive.

The average college student who borrows to pay for college graduates with about $25,000 of student debt.  I personally hate incurring personal debt, but I recognize that it may be necessary and appropriate for things such as an education, a home, and in some cases a car.

Taking out Student Loans

If you must take out student loans, it’s important to understand your options so that you can borrow in the most appropriate and responsible manner possible.  Doing your homework on student loans can save you thousands of dollars in interest and fees over the life of the loan.

Being irresponsible with student loans (federal or private) can ruin your financial life like few others things can.  I’m being dead serious.  You may be able to discharge other debts in bankruptcy or foreclose on your home, but it is unlikely that you will ever completely get out of paying your student loans (student and any co-signers) since the standard to disqualify student loans in bankruptcy is very difficult to meet.

If you default on your federal student loans, the federal government can garnish your wages, seize your tax refunds and Social Security benefits you are due, send a collections agency after you, and basically pursue you indefinitely.  They won’t just give up and drop the matter.

Private lenders can’t just garnish your wages and pursue you indefinitely like the federal government can.  They are generally subject to the applicable state’s statute of limitations and must generally sue in order to collect upon default.  If the lender’s lawsuit is successful, the lender may then be able to put a lien on your home and garnish your wages.

Moral of the story:  if you borrow irresponsibly, your student debt can crush you and ruin your finances.

If you must borrow, make sure you understand your options and borrow responsibly.  Most students have the option of taking out either private student loans or federal student loans issued by the U.S. government (or both).  The next few articles will cover private student loans, federal loans, and how to choose the most appropriate student loan for you.

Additional Student Loan Information

For additional information regarding student loans, you might take a look at the below books:

What has been your experience with student loans?  Leave a comment below!

Image: sam2172/bigstock




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