By Conner Burks
Do you, a relative or close friend have student loan debt? Chances are all three hold some outstanding student debt.
Student loans are now the second biggest type of debt in America only behind mortgages, but eclipsing credit cards. According to Forbes, more than 44 million people in the U.S. have outstanding student loans totaling $1.3 trillion. The average student in the class of 2016 had $37,172 in student loan debt.
“I hate the feeling of having debt,” University of Georgia student Mary Ramsaier said. “It stresses me out because I am afraid after graduation, what if I can’t get a job and I am stuck trying to figure out loans.”
But a college degree has become more essential to landing a good job, while at the same time the costs of getting a degree have exploded. More and more students turn to loans to cover the portion that can’t be paid for by scholarships, families or guardians.
“It’s still absolutely worth it,” said University of Georgia associate professor of financial planning Joseph Goetz. “If you look at ROI, return on investment, it’s off the charts when it comes to a college degree or higher degree for the vast majority of people. It’s still a really good investment.”
Goetz is also a clinical supervisor with the university’s ASPIRE Clinic, which provides financial counseling and education services to the UGA and local communities.
Goetz recommends borrowing through federal student loans over private loans because they allow for repaying the loan over time through a percentage of your income. Therefore, if you’re struggling to find a job and you’re not making any money your payment can be deferred, he explained.
“Students should look at ways of minimizing the amount of student loans that they take out. Whether that’s qualifying for work study or working part-time,” Goetz said. “But it doesn’t make sense to work beyond 15 to 20 hours a week if it’s going to have an adverse effect on their academics. They’d be better off taking out a student loan.”
Paying back the loans after graduation requires planning and understanding how it should be done in relationship to a person’s overall financial situation.
“From a financial planning perspective,” Goetz said. “There’s a best way to pay back student loan debt, and most people get that wrong.”
For example, Goetz warned of paying it back too quickly if that prevents also saving for retirement. Though it may seem like paying down debt is the responsible thing to do, paying the loan off more slowly could allow for one to build up assets in a retirement account such as a Roth IRA.
Student loans can also remind students of their responsibilities, which can be good practice for overall money management especially for students who may not have been accustomed to such things coming into college.
“I’ve definitely become more mindful,” Ramsaier said. “I’ve kept my credit card bill down and always pay it off completely every month. If I don’t have it, I don’t spend it.”