Like many 17-year-olds, I once had a huge, life-changing decision in front of me—choosing a college. But choosing a college isn’t just about the academics and social fit. It’s a decision that could affect your future finances for decades to come. In addition to choosing your school, you also have to make major decisions about tuition, student loans, and scholarships. And for some students, scholarships could include a full-ride offer. When I had the rare opportunity presented to me, I definitely didn't understand the full implications.
My story: A tale of two scholarships
Before me were two college acceptance letters from universities just a few miles apart. One was a state school and the other was a prestigious private school. The state school offered me a full-ride scholarship, and the private college offered a partial scholarship that covered about one-third of my costs. I chose the private school and the lesser scholarship opportunity, and my family took on almost $60,000 in student loans over the course of the next four years. With hard work, things ultimately fell into place for me. I worked multiple jobs in college to cover my expenses and have been successful enough in my career to pay back my loans. For that, I consider myself very lucky.
But now that I have children who are starting to look at colleges, my advice to them: Don't do what I did. Don't go into debt for college if you don't have to. Here's what I didn't understand at the time about student loans and finances.
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My original loans were $60,000, but I ended up paying much more than that. Student loan interest rates aren't particularly good. The current interest rate for an undergraduate direct loan is 3.73%. For comparison, I recently refinanced my mortgage with a rate significantly lower than that. Parent PLUS loans have even higher interest—the current rate is 6.28%.
Let's say you take out $27,000—the maximum amount of Federal Direct student loans available to undergraduates over four years—at the current interest rate. Over the course of 10 years, you'd pay more than $5,300 in interest charges alone. If it takes you 20 years to repay your loans, the interest charges jump to over $11,300, bringing your total repayment for that $27,000 loan to over $38,000. Likewise, a $27,000 Parent PLUS Loan would rack up over $9,400 in interest over 10 years at the current rate.
Related: How Your Degree May Determine Student Loan Payments
Loans versus salary
It's important to understand how your loan amount compares to your potential post-graduation salary earnings so you can calculate how many years it’ll take you to pay off your loans. My $60,000 in loans felt like a fortune when I went to college 25 years ago, but that wouldn't even cover the cost of one year at the same school today. College tuition costs have increased at a much faster rate than salaries. If I graduated today, my first job likely wouldn't pay much (if any) more than I earned decades ago. If your payoff period works out to 20 or 30 years (which is often the case), you'll potentially still be paying your loans when you're getting ready to send your own kids to college. Thinking decades into the future is difficult at any time, but especially so when you're a teenager, yet you’re faced with these big decisions anyway.
The challenge for students headed to college
We ask a lot of teens during their final years of high school. Not only are you balancing the stress of trying to maintain good grades and applying to colleges while being a hormonal teen, but you’re also asked to make huge, life-changing financial decisions. Many students make these decisions without much parental guidance because, let's face it, these are hard concepts for adults to understand too. What you decide about paying for college when you’re 17 or 18 is something that will follow you throughout your life. Although there are options for student loan forgiveness and refinancing student loans that can help, you don’t get a do-over with this decision.
Related: Parents, It's Time to Communicate About College Costs
Transparent conversations about student loans and finances
As I navigate these next few years with my teens, I'm doing my best to have honest conversations about money, including how college will affect not just their future finances but also my own. We talk about big stuff like salaries but also the little stuff like the cost of all those snacks they eat. I don't expect them to fully grasp the implications student loans could have on their lives, but I’m hoping to give them a solid foundation to approach these decisions with more awareness than I had all those years ago.
Long story short: If you have a big scholarship opportunity in front of you, take it. And if you haven’t started talking with your parents about finances and college costs, do it. Your future self will thank you.
Need help finding scholarships to help pay for college and minimize your debt? Check out Our Best Advice on Finding and Applying for Scholarships for all the answers you need!