Serving Bread

Being around college students, I often hear about students’ financial aid stories. A college degree is becoming more expensive. In fact, it out-paces both inflation and average cost of living increases, making some sort of financial aid a necessity for more people who want to get a college education.

One of the gifts of our educational system is that loans for education tend to be pleasantly cheaper than financing other things. And all the interest that we end up paying on a school loan is tax-deductible (which does not benefit the average taxpayer right out of college).

The interest rate that we pay on all of our loans should be a concern to anyone who is serious about managing his or her debt. Though it would seem that most people should understand how interest rates or credit works, my experience tells me that there are many people (especially young people) who do not the implications of living on credit and the effects of interest rates.

The money that is given upfront in a loan may seem a God-sent, but the interest rate terms will eventually cost us more. And when students graduate, most of their education loans will begin repayment six months after graduation, with monthly payments that are amortized over ten years.

Some students choose to consolidate their loans and extend the amortization period (which incidentally, will only make the loan more expensive in the long run). Other students may choose to defer payments (a somewhat predatory practice by the lenders). For example, last year we received a letter telling us that our education loan was in deferment until 2014. Though we were no longer responsible for payments until 2014, the loan would continue to accrue interest that would capitalize. If left unchecked, the last four years of consistent payments would be awash.

I have even known of students who were under so much stress regarding their student loans, that they kept going to school to defer payment. At some point, the loan will catch up with the student, better it be sooner than later

Some tips to live on credit:

• Be aggressive in paying down your loan. The more you pay now, the cheaper your loan will be. I have known some students who have paid something back even during their college years so that when the loan goes into repayment, they have a smaller loan.
• Keep the amortization at 10 years. Even if you consolidate or refinance your loans to a longer term, pay it over ten years.
• Don’t buy into the deferment gimmick. Deferring your loan will only make it more expensive in the long-run. While there may be seasons where you are served by skipping on a loan payment, they should be rare.
• Budget your payments now and then. Go automatic with payments for your loans. This should be a fixed expense that is frozen into your budget until the loan is paid in full.
• Use loans to pay for educational needs only. There are far too many stories of students who take their loan payments to buy new shoes or a new gadget. If you do that, you are cheating yourself in two ways: 1. In the long run, you will be paying a lot more for that gadget; 2. You are burdening yourself with a larger loan than you really need to.

In Luke 16.10 we are reminded that if we are faithful with little, God will give us even greater responsibilities. Student loans may be the first time most young people will engage the credit world. Managing these loans well will aid in financing cars and houses in the future.

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