In case you didn’t get the memo, here’s some bad news on the college front: Tuition costs are going nowhere but up, and until that bubble bursts (if it bursts), there’s apt to be a host of desperate students out there who will have no choice but to resort to drastic measures to finance their educations.
Thankfully, there’s a federal loan system in place to keep borrowing for college somewhat affordable. But what if you don’t get enough money in federal loans to cover your costs entirely? If that’s the case, you may be inclined to throw plastic at the problem and charge your college expenses on a credit card. That, however, is a mistake that could come back to haunt you well after graduation.
The danger of credit cards
The problem with borrowing for college in the form of a credit card balance you carry until you can pay it off is that the interest rates you’ll face will be far more substantial than what you’ll pay with a typical loan. As an example, direct subsidized and unsubsidized loans for undergrads that were given out over the past year came with an interest rate of 4.45%. A credit card, by contrast, might easily charge five times that much interest on an annual basis, which means you’ll end up paying tons more over time.
Not only that, but federal loans generally come with a grace period so that you’re not required to make payments during your studies or even shortly thereafter. Credit cards, however, don’t offer that same flexibility, and so if you fail to make your minimum payments while you’re in school, it’ll be an automatic black mark on your credit score. And that’s a good way to start off adulthood in the hole.
A better way to pay for your education
If you can’t get the money you need to finance your education in the form of federal loans, you should know that you have several options for managing your costs that don’t involve resorting to credit card debt. For one thing, you can seek out private student loans, whose rates, though higher than those of federal loans, will likely be far more competitive than what your credit card charges. Last year, for example, the average variable rate for private student loans was 7.81%, while the average fixed rate was 9.66%. Now clearly that’s not ideal, but it’s better than the 20% or more a credit card might easily charge.
Another option is to work during your studies and earn the money to pay your tuition bills rather than borrow it. Many universities have work-study programs in place that make finding a job easy, and that work experience is a good thing to put on your resume. Along these lines, you might consider delaying college a few years, working full-time to save money, and then using that cash to cover your tuition bills as they come due.
Finally, it always pays to do what you can to keep your college costs to a minimum. This could mean cramming more credits into each semester to avoid having to pay for additional semesters later on, commuting to school rather than paying a premium for a dorm room, and choosing community or in-state public college over an out-of-state public school or private university. The less you end up having to pay for college, the less you’ll need to borrow.
While you may be tempted to charge the occasional college textbook, don’t make the mistake of using your card as a student loan of sorts. By doing that, you’ll risk racking up untold amounts of interest and damaging your credit for years on end. And really, it’s just not worth it.
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