Tanya Attebery, a high school counselor in Las Vegas, Nevada. She has written two book; “What If” and “Fat-Haters’ Club.” She is addicted to blogging on her website and her myspace. You can learn more about her at www.dreamsdontfade.com or www.myspace.com/dreamsdontfade.

Student Loans Can Sabotage Your Life

As a newly freshman on campus who needs money to pay for school, it is easy to look at the bottom line. You don’t have any scholarships; you did not qualify for grants, so your options become: work-study or take out student loans. The least attractive is you don’t sleep because you are working a full-time job while tackling a full load of courses. It can be an overwhelming decision, but take it from experience that student loans should be your very last resort when working on your education.

Let’s define the difference between student loans:

Perkins Loans: are need-based and awarded by the financial aid office to students with the highest need. The interest rate is very low and you don’t have to make any loan payments while in school. (clarify if the interest accrues while you are in school, if so then avoid the sabotage)

Subsidized Stafford Loans: are need-based loans with a fixed interest rate. The government pays the interest while you are in school (this is your best option for a loan-the amount awarded is smaller, but saves you from the sabotage)

Unsubsidized Stafford Loans: aren’t based on financial need and can be used to pay for living expenses. You are awarded an amount and you get a check for the amount above your school costs, so if you are awarded $10,000 and the cost of school is $5600.00 then you can keep the rest to pay for anything you need or want. The key here is that these loans capitalize the interest while you are in school and then add that interest to the loan so you pay much more money to the lender when you have to start repaying. (Avoid, avoid, avoid, if at all possible-these loans can sabotage your life)

Here are the key points as to why student loans can have such a negative impact on your life in the future:
1.  You have the option of taking both the subsidized and unsubsidized loans and the money does look nice and can be very tempting, but consider how much interest will accrue over four years or even more depending on what your major is or if you change your mind and end up spending an extra year or two finding yourself.  5%, 6%, or even 7% does not sound like a lot, but in the long term it sure adds up.

2. After you are done with school you will be paying two payments if you take out both the subsidized and the unsubsidized which means higher payments, so you will be asked to consolidate so your payment is condensed into one and is a bit lower. Then the interest on the unsubsidized loan is added to the total along with the additional interest each month on a higher amount owed because you have now consolidated your loans. Confused?  Yes, that is why you need to read the fine print, take out that projected loan payment calendar, think really hard, and choose to take as little money out in student loans as possible.

Here is a personal experience that I am in and why I wrote this to warn students to think about the options and make sure that student loans are the last resort. They may be a necessity to some, but it will impact the rest of your life.

I am in education which I make around $60,000, but after taxes and insurance I now bring home around $50,000 a year. I took out student loans to achieve my Bachelor’s degree (graduation date 1996), 1st Master’s (2001), 2nd Master’s (2004). I did not pay on my loans while in school. I ended up with $100,000 owed by the end of my education and then I consolidated so my payments would not be too high. I was so wrong. All that interest that had accrued over the many years was tacked on and now I owe $140,000 with what looks like a low interest rate of 4.47%, but here is the warning: I pay $800.00 a month and only $123.00 goes to principle. I will never get this loan paid off and the worst part is that I am on a graduated plan which means every two years my payment goes up. I will just be able to make the interest payments for the rest of my life unless I hit megabucks here in Vegas or work three jobs. Looking back, I made a huge mistake accepting those loans especially in a profession where I can’t make enough money to cover my student loan debt.

I feel like it is a government scam and too many young people just do not understand the consequences of these loans. Seriously, think about it before taking out student loans because the government will not be forgiving when you are done with your education. It is the only loan a person cannot claim in a bankruptcy, so only take the amount you need and no more. I think that is the best advice I can give my students as they enter college. Avoid, avoid, avoid, unless you have no other options.

Resource: www.collegeboard.com (click students and then pay for college)