When is it strategically appropriate and beneficial to borrow for school expenses?
Paying for school usually requires a combination of resources and the careful management of these funds to remain enrolled and persist to graduation. When other options have been exhausted and you are faced with the prospect of borrowing money to pay for school, it is important to know if you are making the best decision for your future. Some borrowing may be necessary, but you should first ask yourself the following questions:
Do you have a clearly articulated goal? Especially when you borrow money to pay for school, you can't afford to meander. Do you have specific career goals that can be accomplished once you achieve your academic goals? Having a clearly defined academic goal will allow you to plan for a specific time frame and for specific costs associated with that period of enrollment. You can then determine a best course of action and develop a plan to meet your financial obligations.
Have you set yourself up to succeed? Will your current personal circumstances allow you to achieve the academic performance necessary to accomplish your goals? Borrowing money only to fail in your enrolled courses is expensive! If you are dealing with a lot of personal problems and distractions, consider taking time away to deal with them. Then, return to school, and if it is necessary to borrow, ensure that the money will be spent on good grades that can get you into grad school or meet the requirements of a future employer.
Are you contributing all that you can to your school expenses prior to any borrowing consideration? Consider how much you can reasonably do in terms of part-time work without negatively affecting your grades. The university generally limits student employees to 20 hours per week during periods of full-time enrollment. This may be a good guideline for you. Spring/Summer employment may also help you to earn funds for school and reduce your need to borrow.
Are you borrowing more than the average amount that most students borrow? If so, why? Is this justified due to some unusual circumstance or extraordinary expense that is unique to you? If not, it may be advisable to consider why you find it necessary to borrow more than most students and if it is worth it for you to continue to do so.
Are you borrowing unnecessarily? Always consider if you can make any lifestyle changes to avoid unnecessary debt. Evaluate your spending patterns to determine if you spend more, on average, than most students for housing, transportation, food (including eating out), books, technology, or entertainment/recreation. Do you need to have a car, or could you find some transportation alternatives to fit your needs? Are your housing expenses too high? Can you reduce your cable or phone bill and use only basic service? Can you share an expense with other students, or with a roommate (for example, carpooling or textbook sharing)?
Are you making an informed decision? Have you calculated the monthly payment that will be required to service your debt after graduation? Have you projected your debt ratio based upon a reasonable expectation for your starting salary? Will your debt payment leave you with a debt ratio of 8% or less?
Are you enrolled in a full course load? Unless there are medical reasons to limit your credit hours or this is your last semester before graduation, it becomes much more expensive to receive a student loan while you are only enrolled part-time. You are, essentially, borrowing to cover a full semester's worth of living expenses to complete fewer hours. Engaging in this pattern over a sustained period of time will cost more, delay graduation, and deprive you of the opportunity to be working sooner (earning an income rather than adding to your debt burden). Borrowing money, if strategically appropriate, should allow you to work less than you would otherwise and complete more school in a shorter period of time.
Will borrowing provide a specific advantage such as graduating sooner or helping you to work less and prepare for a national exam? Can you specifically identify the advantages that you will realize by borrowing, or will it simply help you to maintain the status quo? As long as you will graduate with a good GPA within a reasonable amount of time, it is not always necessary to keep up with crowd-set standards. Please consult with your academic advisor and set an appointment with us to help you determine if borrowing would be strategically appropriate for you.