Live your own life.
That’s not just another vague platitude from a commencement speech. It’s a real-world necessity for Class of 2015 college graduates, such as those picking up diplomas this weekend from Indiana State University.
About one out of seven — nationwide and at ISU — finish college with student-loan debt. The average amount they owe for a four-year degree varies from $28,400 nationally to $28,466 across Indiana to $26,132 at ISU. Their parents probably borrowed a similar sum for their first home mortgage a generation ago.
The 21st century is different. Payments on those student loans begin in six months for most of the 2015 grads. For most, the payments will continue for 10 years.
So how does, “Live your own life,” apply to their situation? Well, to responsibly whittle down that debt, and perhaps erase it early, this year’s college grads must avoid comparing themselves with others. A college degree remains a wise investment, despite its increasingly high cost to students and their families, because of its value in the long run — an extra $20,000 in annual income, according to the Indiana Commission on Higher Education.
In the short run, though, the purchase of a sleek, new sports car — like the one in the neighbors’ driveway — should probably wait until that student-loan debt disappears. Coveting someone else’s lifestyle could derail a graduate’s path to a timely payoff of the debt.
So, live your own life.
“What we always tell (students) is, temper your expectations as to what life is going to be like after graduation,” said Phil Schuman, director of financial literacy at Indiana University. “It’s always tempting to look at what somebody else is doing or somebody else has and say, ‘I want that.’ And you really don’t know what they had to go through to get that or what their situation is.”
Many adults know that slippery slope well. The Federal Reserve Bank of St. Louis calculated that 31.5 percent of Americans are at least 30 days behind on their student-loan payments, the Wall Street Journal reported last month. Indiana holds the 14th-highest student-loan default rate at 15.5 percent of those borrowers, according to the U.S. Department of Education.
Staying out of the late-on-payments predicament is important, several student-loan experts emphasized. New grads can evade those troubles by getting to know their lender right now. Find the lender online, save its help-line number on a smartphone, record its mailing address. Study the various repayment options and pick the most appropriate.
The Institute for College Access & Success compiled a “Top 10 Student Loan Tips for Recent Graduates,” and No. 6 is “Stay Out of Trouble,” with the aforementioned tips on avoiding the complications of a default, such as long-term damage to a borrower’s credit score, garnished wages or tax refund seizure.
Those scary prospects need not occur; being informed is a grad’s best weapon against problems, said Lauren Asher, president of the Institute for College Access & Success. The federal government, which handles nearly 90 percent of student loans, “is very reasonable” in working out payment plans, added John Beacon, ISU’s vice president of enrollment management and a veteran of higher education administration since the late 1960s.
Plan repayment now.
Asher suggests graduates use the U.S. Department of Education’s “Repayment Estimator,” an online tool to calculate what their payback plan will look like monthly, yearly and through the course of the loan’s life. The estimator’s online link is: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action.
Of course, delving into debt lessons seems out of place on commencement weekend. It’s kind of like handing out weight-loss brochures with each slice of “Happy Graduation!” cake. For most grads, their minds swirl with all the thoughts of “what’s next?” “People are graduating, and they’re just figuring out where they’re going to live, where they’re going to get a job,” said Asher in a phone interview from Oakland, California, the institute’s base.
Still, repayment planning needs to be high on their list, too. Indiana colleges have heightened students’ awareness of the realities of loans. “We’re really making a concerted effort at the university that our borrowers are informed borrowers,” said Crystal Baker, ISU director of student financial aid.
Incoming ISU students receive entrance counseling on loans, and the details of their borrowing are kept current on each student’s university online portal. “Every semester, they are reminded of how much they’ve borrowed, and what they have available,” Baker said.
In 2012, IU began a similar policy of annually emailing students a summary of their loan status has effectively trimmed the students’ borrowing, Schuman said.
Instead of taking the maximum for a semester, say $5,000, IU students now often opt for only what they need, perhaps $4,000, Schuman said. “I think you’re going to see more efficient levels of borrowing,” he said.
The Indiana Legislature backed that idea in its recent session. House Bill 1042 became law and requires Indiana colleges and universities to give students an annual breakdown of their loans, complete with estimates of the accumulated interest and monthly payments they’ll face after graduation.
Don’t be defined by debt.
Those numbers, felt once the graduation parties end, have prompted many grads to postpone life decisions such as home buying, marriage and raising families. Some may pursue the most high-paying career in order to conquer their student-loan debt faster, even if such occupations don’t fit their values or personality. With a variety of repayment options, drastic detours aren’t necessary.
“That job also comes with 70-, 80- or 90-hour work weeks,” Schuman said, “and you may not be happy, so it’s not worth it.” Grads shouldn’t “let debt define who they are,” he said.
The Indiana Commission for Higher Education, headed by commissioner Teresa Lubbers, has worked to corral over-borrowing by students and reign in college costs. Still, Lubbers said Thursday, “I would hardly tell someone, ‘Don’t get married because you owe $27,000 in (student-loan) debt. There are many other considerations.”
Instead, graduates should budget wisely, Schuman said. They should consider their “income” to be their pay minus taxes, minus benefits and minus their student-loan payments, and build their lifestyle around those realities. Any extra money they receive, from birthday checks to tax refunds, should go toward the debt payoff.
“Put it toward your debt and get rid of it,” he said. “Because as soon as you get rid of it, you have more life options.”
Remember grads, your debt is temporary, but your degree is timeless. Live your own life, and congratulations.
Mark Bennett is a writer for the (Terre Haute) Tribune-Star. Send comments to firstname.lastname@example.org.