In this episode, Andrew Josuweit shares his expertise in helping students, parents, and other borrowers better manage their loans and make better financial decisions.
College is an Investment
“The average 2015 graduate walked across the stage to get their diploma with approximately $35,000 in student loan debt,” says Josuweit. “That means about $400 a month for the next 10 years.” The discussion about how to pay for college should start around the dinner table. There are many things to consider including:
- The school you attend
- Degree type and major you choose
- Social network that you get from a connection to that college
Lean start-up methodology:
- How do we help a young adult get a job using the least amount of resources possible?
“Spend the least amount you can on your bachelor’s degree,” suggests Josuweit. A great way to save some money is to have a child go to the local state school and stay home for their undergraduate degree. Parents might struggle with this idea because they want their child to go off and have the college experience, but it really is a better option.
Having Debt and Being Unable to Find a Job
Josuweit had this exact challenge when he graduated in 2009 from a top school and still couldn’t get a job. He advises, “This is a marathon not a sprint. You need to focus on increasing your income and increasing your skill set.”
It is very difficult to decide what is a reasonable amount to borrow.
- Get the most bang for your buck. Some institutions will cost double or triple. Is that really worth it?
- How much is the family going to contribute to the education? Parents must set expectations with their children so they know their financial reality.
Josuweit also suggests going to community college for one or two years before transferring. “You could save easily 10 or 20 thousand dollars,” shares Josuweit. You must make sure your credits will transfer ahead of time!
Taking on Debt
There are few different kinds of loans to consider when paying for college:
- Parent Plus loans are in the parent’s name. They cannot be transferred to the child. Josuweit feels these should be a last resort.
- Use FAFSA and get federal loans
- Take out a private loan and cosign. It has more options.
If you do have a Parent Plus loan, now is a great time to refinance. Also, after 12-36 months of payment, you can talk to your loan officer about refinancing. It is also good to look at refinancing once your child is fully employed.
It is important that a college student does not ruin their credit. “You can use the 2 or 4 years you are in college to build your credit score,” describes Josuweit. There must be a clear conversation led by parents on how to manage that credit card responsibly. Josuweit encounters students with ruined credit scores all the time and helps them to recover.
Repayment Programs that are Available
Josuweit notes, “The average interest rate we see is between 5 and 6% and the average user on Student Loan Hero has about 8 different loans.”
- Make sure your contact information is always up to date.
- Usually there is a 6-month grace period after graduation before payments begin.
- Deferment accrues interest, but puts off payments of loans until a steady job is acquired.
- Income based repayment options allow for partial payment.
- Someone working in a nonprofit, military, religious institutions, or federal or state organization can sign up for public service loan forgiveness.
- Popular for teachers or health care providers. You must pay for 10 years and then after that it is forgiven tax-free.
- Refinancing is best for someone who is employed, has a good debt to credit ratio, and can pay his or her payments. You can refinance your high loans into lower ones.
There are over 70 different federal and private repayment options based on multiple factors. Visit Student Loan Hero for further information.
Quick Tips for Students or Parents
When your child is thinking about school, think about the investment.
- Take a hard look at the degree, major, placement from the school, and the average debt of students at that school.
- Getting out of debt quickly is very important. Then it frees up your income for investing which is better for your financial future.
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Brad is not affiliated with Student Loan Hero or Credit Karma.