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The blessing and curse of student loans part four; considering the costs

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“Always count the cost of building a tower before setting out to build it, lest you are unable to finish and all who see it will mock you,” Dave Ramsey says paraphrasing Luke 14:28-29 in his Financial Peace University. Even if a person doesn’t believe in religious dogma, the message within this scripture is universal; when setting out to do or purchase something of great value such as an education, take time to think about it and have a plan.

This article is the continuation of the series titled The blessing and curse of student loans, which was inspired by a tweet by Jim Cramer of MSNBC’s hit investing TV show Mad Money.

With the current economy and the increasing costs of attending college, it’s more important than ever for students and families to ponder the costs of attending a particular institution and to consider the potential salary from the student’s major of choice. This is may sound simple, but it is complicated. The teen-age mind in most cases can’t conceive of having to pay back tens or hundreds of thousands of dollars of loans while trying to; maintain a comfortable living, maintain a solid credit history, build wealth, start a family and save for retirement.

As a teenager it’s very easy to get caught up in the excitement of college sports, the clever marketing campaigns that Universities create during Football and Basketball broadcasts, and even wanting the black college experience as was my case and other young African Americans. This is not to dissuade anyone from attending their dream school, but to consider what will inevitably come after the graduation ceremony.

Prior to borrowing significant student loan debt, there are several key questions students and families should consider:

• Are there grants and or scholarships available?
• For the major that the student will pursue, what are the job prospects for that particular industry? Do these prospects warrant going into significant debt?
• How much more will it cost to go out of state than in state?
• Can the student start at a community college and then transfer to a four year institution?

In The American Community College: A Continuing Gateway to Opportunity, Dr. Ralph G. Perrino makes the argument that Community Colleges can not only ease the adjustment for students who aren’t ready for four year institutions, but they can also save families significant amounts of money.

“You’ll have a hard time convincing me that the education you receive for the $60,000 yearly tuition at Harvard is of better quality than that which you would receive for the $6,000 tuition at my alma mater, the University of Toronto,” states author Malcolm Gladwell, whose writings teach that bigger and well known schools aren’t necessarily good for every student or worth their costs.

This discussion is not restricted to younger students. There are scores of people who have worked a number of years in a specific industry and then decide to change to something else. What’s really popular these days for example is attending Law School which can cost hundreds of thousands of dollars, but in many cases with bleak job prospects after graduation.

“We will still be paying off our student loan debt from law school when our two year old son turns 18,” a friend and his wife, both successful lawyers recently shared with me.

In short, a college education (undergraduate and postgraduate) is an investment which is being financed these days with student loans by many families. While some argue that this crisis has been created at the government level as described in a recent article by CNN’s Van Jones, the amount of debt being borrowed (and the ability to pay it back) is also driven by the major and the institution chosen. Thus before choosing that institution and taking out the loan (s), it’s important to consider the long-term ramifications.

This series will be concluded in part five where the current plight of historically black colleges and universities will be discussed as it relates to a specific loan used by significant numbers of students who attend these institutions, the Parent Plus Loan.

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