Lesson Learned: Paying for college with student loans

How long did it take you to pay off your student loans?

I remember the fall semester of my senior year in high school the teachers went on and on and on about applying for scholarships. I remember thinking that scholarships were only for the students with the most extracurricular activities, best grades, and most skill on sports, and that there was no point in applying because I would never get them. Eventually I applied to maybe 3 scholarships and I got one. I thought I was lucky and was ahead of the curve.

Towards the end of the year the school had a senior awards ceremony. During one of the awards presentations the award presenter mentioned that the award recipient had sent out *hundreds* of scholarship applications - and was awarded over 50 scholarships and grants. Needless to say, her school was paid for. So much for my one scholarship.

I received some help with paying for college from my family, but I needed to find a way to cover the rest of my college expenses. At that point I had two options: work during school or get student loans. I chose student loans because I thought that if I worked, I would end up flunking out because I didn't have enough time to study. I also figured that it was normal to have student loans and, besides, most people can pay them off quickly after college.

When I started the loan process I quickly found out that I needed a cosigner. I eventually asked my family to cosign for me, and they obliged. But after I received the loans I always felt uncomfortable visiting them. In the back of my mind I kept thinking of different scenarios that would make me unable to pay my student loans. What if I ended up dropping out of college? What if I couldn't find a job? What if the job didn't pay enough? What would I say to them, sorry? Holidays never felt the same again.

Fast forward to graduation and I had built up slightly over 40k in loan debt. 11 months later I married my wife, and she had some where around 8K loan debt. By the time we were married all student loans had entered repayment. We figured if we paid a substantial amount each month we could pay them off in a couple of years. But after a few months, life happened and we found out we were expecting our first daughter 9 months (to the day) after our wedding. Student loans fell down the priority list and we realized that we were not going to quickly them off,

We will make our last student loan payment this May, over 4 years after we started repaying. Then we can finally put college behind us. Altogether, we will have paid over 60k in principle and interest. We would have loved to used that money for other things, especially using it as a substantial down payment towards our house and setup an emergency fund.

If I could relive my senior year in high school and college, there are things I would have done differently:

1. Paid more attention to my grades to improve my chances for scholarships and grants.
2. Apply to as many scholarships and grants as possible. Nothing beats free money.
3. Work during college to pay off the rest of my expenses.

There are also a few other things I have learned in regard to student loans:

1. The relationship between a signer and a cosigner is strained, whether they consiously or subconsciously realize it.
2. Don't rely on things going perfectly to pay off student loans. Life happens and student loans are an unnecessary burden.
3. Student loans limits your opportunities and choices after college

Next up: Financing purchases and no money down

Lesson Learned: High School Savings

What did you do with the money you worked for during high school?

Back when I was in high school I, like many others, had a part time job. I worked fast food and was paid near minimum wage. I took it so that I could..well..spend it on something I wanted.

So I worked long enough to save up money to buy the parts I needed to build a computer. When the computer was complete, I was proud of myself for earning the money to buy something I wanted, and then saving up to buy it. So I did pretty good, right?

Sort of. I didn't get a loan, use credit, or borrow money to buy the computer. I earned the money the way it should be earned, by working at a job. I balanced my time between work and school and I maintained good to decent grades.

But when I was working, the only thing on my mind was using the money to buy the parts for the computer. I did just enough at the job to stay employed and get a paycheck. Then, I quit the job when the computer was complete. I later realized after I quit that my parents had planned on getting me a computer for graduation (ARGH!!!)

I should have worked not just to buy a computer, but to prepare for my future. If I had worked for a longer period of time, worked to serve the customers instead of myself, and cared more about the job, I would have received a raise and promotion and saved up more money. But if I did save the money rather than blowing it, what could I have done with it?

• I could have set the money aside in an emergency fund. It would have easily covered the car repairs and parking tickets I had during college that I ended up paying for with money that was "refunded" me with private student loans.
• I could have used the money for college expenses and take out less money in student loans. I will touch on the student loans in a later post, but it would have gone a long way towards covering the expenses I ended up paying for with a non-subsidized student loan.
• I could have invested the money. If I had set the money aside in a Roth IRA and ignored it for 45 years until retirement, the $2,000 I earned would have grown to roughly $72,000 averaging an 8% annual return, or even $176,000 averaging a 10% annual return, tax free!*

I am probably a little hard on myself. After all, I was only in high school and there is nothing wrong with spending the money I earned on something I wanted. But this does demonstrate how decisions with money early in life can significantly affect finances later in life.

Next up: My first credit card

*Investment return estimated using the investing calculator tool at  http://www.daveramsey.com/articles/article/articleID/investing-calculator/category/lifeandmoney_investing/