Getting started

Student loans have a way of lingering

May 28, 2006|By Carolyn Bigda

A lot of college graduates are looking forward to the day that pop singer Madonna becomes a grandmother. By that point, their student loans finally will be paid off, say 69 percent of grads in a survey published by AllianceBernstein Investments.

Nearly one-third, however, said they still expect to be making payments.

The fund company asked more than 1,500 adults ages 21 to 35 to rate how student debt affected their lifestyle, career and financial security post-graduation. And if the somewhat whimsical Madonna reference says anything, it's that college loans play a lingering role.

Some key findings:

- The majority of all students worked part-time while in school, and roughly a third lived at home to save money.

- Both groups are optimistic about their financial future.

- But 74 percent of indebted grads say they live paycheck to paycheck, versus just more than half of debt-free grads.

- And 44 percent of those with debt say they've delayed buying a house because of college debt.

All of this speaks to arguments already expounded in books such as "Generation Debt" and "Strapped": It's tough to get going in the real world.

The AllianceBernstein study is important, however, in that it compares graduates with debt with those who don't owe.

"The results show that it's that much harder to get started if you graduate with debt," says Jennifer DeLong, a director of AllianceBernstein's 529 college-savings plan.

Undoubtedly, a college degree increases your earning power throughout your working life. While some educational debt may be unavoidable, it's also invaluable to try to minimize the burden.

Quantify the debt

Recent reports suggest that some of today's students are taking out as much as six figures in loans to pay for a private college, even though their parents could have paid for a state school.

If you're heading in that direction, make sure you understand the effect on your wallet, post-graduation.

The AllianceBernstein survey found that the median student loan payment was $200 per month. At 5.3 percent, the current rate on federal Stafford loans, that means those students graduate about $20,000 in the hole.

Multiply those figures by five, though, and those six-figure borrowers would owe more than $1,000 each month.

To play with the numbers yourself, use the loan calculator at

Don't borrow on plastic

The survey also revealed that 43 percent of grads with debt, versus just 16 percent of those without, used a credit card to pay for tuition or other college expenses. Almost one-third of students with debt carried a balance, as a result, for more than five years.

In some cases, it seems, you just can't help using a credit card. You need that lab equipment to complete your assignments, right?

But avoid carrying a balance as much as possible. Credit card interest rates are variable and can be more than twice the rate on a student loan. Take on both credit card debt and student loans and you'll really be living with mom and dad for a while.

Consolidate before rates jump

To top everything off, interest rates on federal student loans are expected to climb by as much as 2 percentage points, to more than 7 percent, on July 1.

If you're in school or repaying already, you can lock in a rate as low as 4.75 percent if you consolidate by the end of June. The savings on the typical $20,000 debt load: nearly $3,000 over 10 years.

It's certainly feasible to have a comfortable lifestyle even with education debt. But less definitely is better.


E-mail Carolyn Bigda at