Student loans and your responsible career series - Part 2
When coaching students and working professionals who want to pursue a responsible career, I have heard them again and again expressing a huge fear: Many believe that the salary they can draw from making a positive social and/or environmental impact will not be sufficient to meet their financial goals, especially when it comes to paying back their student loans. In my previous post, I have provided two strategies for current students to minimize the amount of loans they take while in college.
To me, student loans are a bit like smoking. It's not because cigarettes are legally available on the market that they are good for you. In the contrary, they are a type of product that can cause significant harm to your mental (and physical) health, and that of your loved ones. Resisting the temptation to rack up debt is especially hard in the US, where qualifying for a student loan, a car loan, a mortgage, a personal loan, or a credit card is easier than in many other countries. Easier access to credit combined with high tuition costs lead to devastating financial results: Data from the Project on Student debt shows that in 2008, 1.4 million (or 67% of) students graduating from four-year colleges and universities had student loan debt. Furthermore, a study by Sallie Mae indicated that College seniors graduated with an average of over $4,100 in credit card debt in 2008 (as compared to about $2,900 in 2004).
To make matters worse, evidence suggests that universities might not have acted in the best possible interest of their students and alumni when it comes to enabling them to rack up debt. First, during the second half of the last decade, private lenders have provided incentives (and additional loan money) to universities who abandoned direct Federal Loan Programs. Most universities' reasoning for foregoing Federal Loan Programs and let private lenders take over their student loan programs was that these private loan programs provided better access to credit for students who might not qualify for Federal Loan programs.
Now let's think this through. Universities went with private lenders to give loans to students whose credit scores or financial history did not make them eligible for traditional loans. To me, these seem a bit like the equivalent of the subprime loans what were made in the mortgage industry, but applied to education. To universities, that was not a huge risk, as universities would receive their tuition dollars no matter what, whether students would be able to pay back their loans or not. Is this a responsible practice from universities to look the other way and not really care whether the students they educate would be able to pay back their debts? I think not, but this might be what has been happening in a number of cases.
To make matter worse, evidence indicates that universities directly received money from credit card companies if their students opened a credit card with them, and universities received even more money from the credit card company if their students and alumni racked up debt on their credit cards (for a summary of these cases, see the recent article from the Huffington Post).
So you get it: You might have been the victim of tempting credit practices that did not encourage you to be financially responsible. But now, like many people that are living under the significant stress of paying their loans back, you are now wondering how you can get off the loan addiction bandwagon so that you can build a career that gets business done better. I am not going to have you go through a 12 step program for your loans. Instead, I will point out three simple strategies you can use to achieve a healthier balance between responsible loan management and your responsible career goals:
Responsible Career Strategy #1: Get help - Like stopping smoking, paying back loans is really hard. But you are not alone and can get help to best manage your loans in a way that minimizes your interest rate and the duration of repayment. Remember that your loan provider is benefiting from you paying your loan as slowly as possible at the highest rate possible. No matter what they tell you, credit providers of any kind are not in this business to help you, they are primarily in this business to make the most amount of money out of the loans they make. Fortunately, there are organizations and people out there that are here to help you manage your credit score and loans responsibly. For instance, CreditAbility.org as well as organizations and companies affiliated with the National Foundation for Credit Counseling offer free to low cost financial counseling that will assess your current financial situation and help you come up with a plan to get rid of your debt as fast as possible. Also, student leverage (www.studentleverage.com) specializes in providing student loan solutions to current students and alumni that can help you benefit from a number of existing and new regulations that can lead to lower interest or principal on your current student loans. A friend of mine who refinanced with student leverage now has all his loans consolidated at a 2% interest rate, not bad at all!
Responsible Career Strategy #2: No matter what, keep making your payments - Forgetting about your debt by not making your payments does not erase your debt, it makes it worse. So no matter what, make a payment every month. If you cannot make a full payment for a given month month, pay as much as you can, and write a letter explaining what hardship you face that makes you unable to make a full payment for that month. Also outline in your letter how in future months you intend to make up for the amount you missed that month. This will enable you to think through your situation, and have a concrete road map that will enable you to go from chaos to control when managing your debt repayment schedule.
Responsible Career Strategy #3: Take advantage of loan forgiveness programs - Of course, check if you have taken advantage of all the benefits you are eligible for through your employer. For instance, if you work for a Federal Agency, do you know about the Student Loan Repayment Program? This program was created to attract and retain top talent and enables agencies to pay up to $10,000 per year towards an employee's student loans (and up to a total of $60,000 for any one employee). If you are working for a business or a nonprofit organization, make sure to check if you are eligible for loan forgiveness programs or for benefits through your employer. For example, the Public Service Loan Forgiveness Program enables professionals from select public service professions across the government and non profit sectors to have their interests and loan principals forgiven if they stay in their profession for 10 years. This program has some important restrictions though: You need to be working full-time for the entire 10 years and make 120 payments without skipping any payments.
In the last couple of years, new loan forgiveness and loan management solutions have been made available to those building careers that make a positive social and environmental impact. Make sure that you take full advantage of these programs to pay your loans back faster while making a positive impact. Student loans are tough to bear, but they do not make it impossible for you to pursue a responsible career that successfully blends financial return with social impact and environmental responsibility.
Please use the comment section below to provide any additional insights you might have about managing your loans and your responsible career growth!