Parent Column: Control student debt before it controls you

Most students at USC and universities around the country are finding rising college costs to be a formidable challenge. College costs have increased at a rate higher than inflation for the past two decades. While the reasons for this rapid cost increase can be argued from many viewpoints, I feel that the push to provide every high school student the college experience (regardless of need, desire or aptitude) has created a level of demand for higher education where students and their parents are willing to pay whatever is necessary to gain a seat at that table.

This demand, combined with limited federal student funding and the nearly limitless availability of college loans, has created a situation where there is neither the desire nor the need to institute cost containment on the part of the colleges and universities. The students will continue to come and fill the available seats, but the students are on the hook for an ever-increasing share of the costs.

USC tuition has only increased about 3.2 percent each year for the last five years, but this does not reflect the entirety of college costs. As a former engineering student, I noted in particular the rapid increase in the engineering and computing fees in the past few years. These fees have increased from $200 per semester in 2014 to $918 this semester and are expected to rise to $1500 per semester by the 2018-2019 academic year. Many other classes and degree programs have similar fees and rate hikes associated with them that progressively increase college costs year after year.

A few students have scholarships that cover most of their college tuition and fees. Rarer are those students who have been granted full-ride scholarships. Almost 80 percent of students, however, find that they need to take out some student loans to cover the financial gap between their grants and scholarships and their college costs. The average college graduate will enter the workforce with approximately $26,000  in debt for a four-year degree and almost $51,000 for a graduate degree. Law and medical student debt can easily exceed $100,000 or more.

As I was entering college, I knew that I was going to incur some amount of debt in order to pay my way through, as my parents were unable to contribute more than a small fraction of my college costs. I considered the debt load being undertaken as a necessary evil that allowed me entry into the medical device industry as a biomedical engineer. I ended up going back for a Master’s degree in biomedical engineering and walked away with the average graduate degree debt load when I entered my career.

Your student loan debt can be a huge obstacle to overcome as you enter the workforce. But it can be tamed and rapidly diminished if you’re willing to put some thought into actively managing it. If you pay only the minimum balance on your loans for years on end, you will remain indebted for decades to come.

When you graduate and land that dream job, don’t immediately start spending all your income on living the high life, and don’t take on a lot of new debt frivolously. Consider buying a used car rather than a new one and let the other fellow pay the thousands in depreciation in value as they drive it off the lot. Set up a budget where you pay more than the minimum balance on your student loans. An extra $10 or $100 each payment early on will save you thousands on the loan repayment and remove months of repayments over time. Pay yourself a bit each month for savings, investment and entertainment, then put the majority of that extra cash flow from your new job into paying off your student loans as rapidly as possible. Once your loans are paid off, you will have plenty of money to use for vacation and travel, building up a down payment on a house and saving for retirement.

If you still have a year or more left before graduation, try to choose federal loans over private lender loans. They almost always have lower interest rates and cost you less in the long run. And don’t be drawn into signing up for a credit card while in college. Many companies offer low introductory interest rates that can suddenly rise to the maximum penalty rate if you miss even one payment. Learn to set a budget and continue to revise it to make it work. This will be very helpful to you when you graduate.

I wish I had had someone to give me similar advice as I left college. For more than a decade after graduation, I had student loans, credit card debt, house payments and car loans. I had no aggressive plan for paying them off and for staying out from under debt. It took me years to understand why I was working for my money rather than making my money work for me. It took me a while, but I learned. Aggressively paying off your loans is much easier to do immediately after graduation than it is to attempt it after you’ve settled down, gotten married and started raising a family. Read personal finance experts like J.D. Roth, Robert Kiyosaki or Dave Ramsey for more ideas on aggressive debt reduction plans.

Proverbs 22:7 says that the borrower is the slave to the lender. You’re working hard on your degree and you’ve taken on your debt as your burden in order to get to your career. Consider a little more effort after graduation to earn your freedom from this burden and become the master of your own destiny.

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