Friday, January 13, 2006

The Education Loan: Is It Worth The Cost?

You cannot ignore the fact that the cost of a college education has soared through the roof. This threatens to make a higher education for pursuing a dream career an impossible task. Therefore, students and their parents are compelled to opt for education loans.

Student loans have become a part of life. This is no wonder, considering the facts and figures that clarify the earning potential of college graduates. There has been a series of nationwide surveys on student loans and their implications. The fact is that each college graduate ended up earning $1 million (according to the United States Census Bureau) more throughout his/her career than a high school graduate.

The Advantages

Many people are confused as to whether they will be ever able to repay their loans completely, given the high rates of interest on various student loans. However, the advantages of taking out a student loan may far outweigh the costs:

1. College educated people advance higher and faster in their careers.

2. The average earnings of the college educated are $2.1 million and this figure is $1.2 million for high school graduates. Still, considering one takes out a Federal Perkins Loan (current interest rate of 5% per year), and borrows the maximum amount permissible, which is $40,000, the total repayment you would make over a 10-year term would be somewhere close to $51,000.

3. Contrast this against average salaries of college graduates. A nursing job would get you $38,788; Chemical engineering $53,659.

4. Salaries are increasing steadily at a healthy pace from 11.2% for elementary school teachers to 5.3% for civil engineers and 2.1% for chemical engineers.

How does it all add up? Considering again the Federal Perkins Loan, which allows you to pay back the entire amount with interest in 10 years, it will take away 1 – 2 years of your starting salary but spread over a 10-year term. The monthly payment would not be over $430 for the whole term, while your salary keeps going up.

How Can You Plan Your College Education Loan?

Well, how can you plan for the loan? Before you decide on a loan amount, you need to assess your different options:

1. Grants and Scholarships: Grants and scholarships are referred to as free money, as they are not expected to be repaid. They fund education completely depending on certain criteria. In this case, you would hardly opt for loan if you have a choice.

2. Work-Study Programs: On- or-off-campus Federal programs let students work part-time to offset their expenses. Depending on your savings, your loan amount can be reduced up to 50%.

3. Tuition Payment Plans: Spreading out of tuition and fees eases the burden of a one-time payment for families who have discretionary income.

4. Home Equity Loans: This can possibly eliminate the necessity to take out a student loan.

5. Funding Through Assets: Through the sale of stocks and/or 401 (k) plans, families cab fund their children’s education in order that they reduce the student loan component.

With planned self-financing, you can strengthen your position to fund your higher education and reduce your student loan debt. By utilizing student loans to either partly or completely fund your education, you will ensure yourself a lifetime of income long after the loan is repaid.

Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solutions – Six Sigma Online ( ) offers online six sigma training and certification classes for lean six sigma, black belts, green belts, and yellow belts.


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