Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

03/10/2004
Taking out a student loan.
I am a 26-year old single woman. I live in an apartment, and am paying off a car loan and credit card debit. I am a full time hourly employee, and I receive subsidized benefits through my company. I have two undergraduate degrees, but I would like to go back and obtain certification that would increase my earnings by 30% at a new job.

To obtain my certification, I will need to take 8 classes at a nearby technical school. The number of semesters will depend on if I can take classes concurrently or separately. Once I know how many classes I can take each semester, I will be able to decide if I will go back full time, part time, or around work.

Regardless if I go back full time, half time or around work, should I take a loan amount over the cost of tuition/books/living (if full or half time)? School loans have a lower interest rate than I am currently paying (7.9% on my car and credit card), and I could use them to lower my car loans and credit card amounts.
Gerri Detweiler:
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It's terrific that you want to go back to school to increase your skills and your earnings but I would caution you to minimize student loan debt while you do that. Student loans are attractive in that your interest rate is probably low, and you can often deduct the interest on your taxes if you itemize.

But one thing many people don't know is that federal student loans can quickly become a nightmare if you later face problems (losing or changing a job, starting a family and taking a cut in pay etc.) and have trouble paying them. They are not generally dischargeable in bankruptcy, and unlike other types of unsecured debt, a reduced settlement can't be negotiable. If you do fall behind, the collection costs can be substantial.

I've talked to so many people who feel trapped by student loan debt and can't reach other goals, such as buying a home, because of it.

My advice is to continue working if you can, and try to keep your student loan borrowing to a minimum. It's also worth researching and applying for financial aid such as grants or scholarships as well. Then when you do finish school and get your pay increase, you'll be able to save and invest it rather than simply trying to pay off the debt!
Catherine Petter:
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Since your question is quite long and involved, it seems easiest to just work through the problem. You say that you could increase your earnings by 30% if you were trained for a different job. You also say that you have 2 college degrees, so it seems clear that you are comfortable going to school. Is this new job, the job that pays 30% more, something that you are guaranteed of getting? (i.e. Has someone already made you an offer that you are getting ready to accept?) If so, is there any possibility of tuition reimbursement from your employer?

If, instead, this is a potential job opportunity that could potentially pay 30% more than you are making right now, I would call the idea of going to school into question. While it could be that people with this certification are earning 30% more today, will it still be true when you finish your certification in a year or two years from now when you finish your training?

Moreover, what is the total cost of this certification? Assuming that you are paying for it yourself, how long will it be before you have broken even? (i.e. at what point does the difference between what you make today and what you will make in the new job pay for the certification – including the time you spend not working because you are going to school full time.) Are you willing to spend this much of your life paying for the increase?

I'm sorry to be such a wet blanket, but then again, I don't hear you longing to do this other profession. Making the kind of sacrifice that going back to school requires takes enormous motivation, so it is important to ensure that you have it, before you take the plunge and give up your job. You don't want to find yourself going back to school again in another 3 years.

Finally, on combining debt into a new, bigger loan. You don't say this, but often what people are thinking when they talk about combining debt into a single loan is to squeak out a little more debt so they can buy a few more things. Instead, I would recommend that you pay off as much as you can before you sign up for school, even if it means postponing a semester. Life will be a lot easier if your bills are smaller.
Connie K. Marmet:
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Some employers have fairly generous tuition reimbursement benefits which would be far better than a loan. The lower interest rates are clearly preferable if she has to borrow money. But I would think some of the employment and training folks could suggest some work/study or other type of arrangements to link her work and training while she's going through the classes.
JoAnn Bunten:
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In addition to your mention of a better interest rate, depending on your circumstances, the interest you pay on your school loan can be tax-deductible. The interest on your car loan and credit card debt is generally not tax deductible. Therefore, your net out of pocket cost of the interest expense is reduced even further. Another tax savings, one that you should ask your personal tax preparer about, is if you would qualify for any tax credits for any tuition you may have to pay out of your own pocket.
Susan Garcia:
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I admire your interest in improving yourself and I certainly believe in the concept that we must constantly learn throughout our lives. I would seriously review why you are going back to school for a certification. I would look to evaluate your career interests and strengths and determine what you truly want to do with a career. It sounds like you may be searching for a career and have not found “your passion”. Look hard within yourself, set a career goal. If what you really want to do requires a certification, then go after it. If what you really want to do does not, then save your money, do a job search, then change positions. I do not mean to be a wet blanket, but I am a believer in looking within ourselves, then setting goals to achieve our passion. If we love what we do we will be successful.
Gail V. Marquet:
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Getting an additional certification to enhance your marketability is always a good thing to do. However, in this instance, I would have to recommend this young lady put her plans on hold. I would first suggest she pay off her credit card debt, then work on her car debt. Once she has these paid off, she should begin saving for the tuition for the certification. When she has this saved up completely, she can consider getting the certification. I strongly suspect she has student loan debt incurred with the 2 undergaduate degrees that she is not considering in her debt mix. If she adds more debt at this time, she is just digging herself a deeper debt hole.

An additional note

For more information, please check Hot Jobs For the 21st Century and BLS' Occupational Outlook Handbook.