Student Loans: Be Wiser About Your Education

According to costofwedding.com, the average couple in America spends around $27,000 on their wedding, and according to bankrate.com, about $5,000 more on a honeymoon. That's $32,000 total. Maybe you spent a little more or a little less. Maybe you're planning on spending a little more or a little less. Whatever the number, tens of thousands of dollars buys a very nice wedding/honeymoon combo. 

The situation for my wife and I, however, was drastically different. Our number was $800. Total. And we skipped the honeymoon. 

We had gotten ourselves into a serious financial bind during the five or six years leading up to our wedding. We were broke. Dead broke. Which was a problem because we both had dreams of that $27,000 wedding. Pure white and perfectly dressed tables, beautiful flowers, a cool DJ, and lots of great food to feed hundreds of our friends and family, all staged at a magnificent outdoor venue with the evening sunset as the backdrop. Our reality, however, was that we couldn't even afford a wedding dress. 

No, we didn't go on a gambling spree in Vegas or get tempted into one of those shady "quick cash" brokerages that charge 150% interest. We didn't do anything like that. We just did what the world told us to do. We got student loans to pay for college.

When we got married we were $120,000 in debt. Half (HALF) of our monthly income went straight to paying student loans. The other half went toward things we needed just to survive. 

We had unknowingly been using debt to dig our own graves for years, and as a result we couldn't afford that grandiose wedding we wanted, nor could we afford a honeymoon. The first three years of marriage we spent working a combination of six jobs and allowing ourselves $40 to $60/month to have fun with. In other words, we didn't have much fun. Our life revolved around earning money and paying bills. 

Think about that. How you would feel after getting married, eagerly awaiting the enjoyment of a brand new life with your spouse, but having student loan bills up to your eye balls taking away your financial ability to actually enjoy that brand new life? Do you think it's fun being invited to dinner or a movie with friends and having to say "sorry, we don't have the money"? 

Don't get me wrong. I'm not saying we didn't enjoy being married or that money buys ultimate happiness. It doesn't. But it does buy a lot of happiness, especially for newlyweds. We had to make the tough decision that, in the long run, spending three years paying off debt was more important than spending three years purchasing other things. 

If we knew then what we know now, we would have been a lot smarter. Our use of student loans for education literally cost us three years of our lives. 

Education is hugely important - both for a functional society and the individual. It's one of the best investments you can make. The founders of America wanted a well educated citizenry in order to preserve both liberty and the individual's ability to think and govern for themselves. Education is meant to ensure freedom. But in today's world, 70% of those pursuing higher education are doing so in a manner that actually enslaves them.

Proverbs 22:7 says, "the borrower is slave to the lender." The wisdom in that statement may go over your head if you're still under your parents' roof, but if you're in debt up to your eye balls like we were, chances are you understand it completely. Owing money to someone else isn't a good position to be in. 

Other than the fact that they're debt, student loans have six major issues surrounding them that many don't consider: 

1) Most are non-bankruptable. 

It's almost impossible to get rid of student loans which are federally insured. If you can't afford to pay them back (which, let's be honest, if you need student loans it's because you don't have the money in the first place), the government will wait...and wait...and wait. They'll get the money from your social security check if they have to. 

"No problem," you say. "I'm getting involved in a repayment program with my company that will fully pay them back after five or ten years." To that I would ask, why would you keep yourself enslaved and weighed down by debt for that long? And even if your program does pay back your student loans, it legally counts as income for that year, which means you're taxed on it. The more student loan debt paid off, the more taxes it creates for you. That scenario also assumes no major life events happen in those five or ten years and you can continue working, and that you're not fired, and that your company doesn't go out of business. All of which could happen, and if they do, your loans are back on your shoulders. 

2) Student loans are given without collateral.

Collateral is basically something the borrower owns which is forfeited if they don't pay, to offset the risk the lender takes in lending the borrower money. For example, let's say Johnny gets a mortgage from Broke Bank to purchase a home. Three years later Johnny gets fired from his job, can't find another job, and as a result can't pay his mortgage. Johnny's house will go into foreclosure and Broke Bank will take ownership of it to cover their loss. Johnny's house is collateral. (Just as a side note, 100% of foreclosures happen on homes with mortgages on them.)

The issue with student loans is that, due to most being federally insured, the lenders don't care if the borrower has collateral or not. They don't even care how well the borrower handles money. If the borrower doesn't pay them back, the government (taxpayers) will. 

This means very impressionable teenagers with little experience or ability handling money, who have no business borrowing hundreds of thousands of dollars, have the opportunity to before even graduating high school. 

3) There is a BIG financial trade off. 

Trade-offs happen with every decision in life. Some are big, some aren't so big. For example, if you spend $60 on a nice meal with your girlfriend, that's $60 you don't have for the next Call of Duty game or whatever you're into. 

It's the same with student loans. The money you'd be spending paying off student loans could be spent elsewhere. 

Let's briefly look at the math. The average amount of student loan debt per borrower is $30,100 (according to The Institute of College Access and Success). The average interest rate on those loans is about 5%. And the average bachelors degree holder takes 21 years to repay their loans (OneWisconson Institute). 

So, $30,100 paid over the course of 21 years at 5% interest comes out to about $50,000 (the money which actually comes out of the borrowers pockets over that time period). 

If you were to take that same $50,000, but instead of going into debt with it for 21 years you invest it in the stock market at the market's average rate of return, that $50,000 would turn into $588,000. 

The financial trade-off the average person makes when taking out a student loan is $538,000. I hope their education was worth it. Mine wasn't. 

4) Student loans have become normalized.

This point isn't as much to do with student loans themselves as it is with how our society has become. There's a herd mentality surrounding them now. Student loans have become so normalized in America that people think they're actually doing something wrong if they don't get one for college. 

5) They don't guarantee that you graduate. 

About 70% of those going to college get student loans, and almost half of them never graduate. I'm one of those who never graduated. I still had to pay back my loans. There are no refunds.

6) Student loans don't guarantee a job. 

If you obtained a degree in the 1960's and 1970's, you were pretty much guaranteed a good paying job. Today, not so much. 

It took my wife almost two years to obtain a job in her field after graduating college. In the mean time she had to work minimum wage, barely able to make her loan payments. Many others are in the same situation. 

In conclusion, the best investment anyone can make is in themselves. Becoming educated and getting smarter are good things to do, but it's very possible to be dumb about doing them. Don't be dumb about education by becoming a slave to get one. 

If you don't have the money to attend the college you want, either attend one you can afford or save the money so you can pay cash. Employers don't care where you went to school. A smaller, local college is just as good as a larger prestigious one. In fact, I learned more at the smaller colleges I attended than the larger ones. 

Force yourself into the mindset that "debt is not an option." You'll be surprised at the creative ideas you come up with if you just say no more student loans. 

Apply for every single scholarship and grant you can find. If you're a graduating high school senior and plan on going to college, your full time job right now should be filling out scholarship forms if you don't already have college 100% paid for debt free. 

If you can't afford to pay for college all at once, don't. Go to class one semester and work the next. Get a job at a company which will pay for your classes while you work there (not a repayment program). It may take longer, but you won't be enslaved with debt when you're done, and you'll also come out ahead over other graduates because you'll have real world business experience. 

And finally, be in charge of your education, don't let it be in charge of you. Don't trade $588,000 for $50,000, chain an anvil around your ankle for 21 years and become a servant to the bank just to obtain a degree. Be smarter than that. If your future aspirations require a degree, get one debt free. Your future actually depends on it.