Can Staying in School Save You Money?

If you’re anything like the majority of other college students, you are looking forward to the day when you will be tossing your cap in the air and walking out of the university for good to get on with your life - advanced degree firmly in hand. For many college students, though, that sense of anticipation is tempered by the cold hard reality that about six months after that cap is tossed in the air, they’re going to be slammed with the obligation to pay back their student loan debt. With the average cost of just 4 years of college running somewhere in the neighborhood of $35,000, student loans have become something of a necessity for many young adults out there…and most people do not graduate in just 4 short years! Then there are those of us who aspire to the PhD or JD degrees to become physicians or lawyers - their schooling can easily top 100,000.

So now graduation is looming, and in your mind’s eye, you can see Sallie Mae or one of the other private lenders you used rubbing their hands together in eager anticipation of collecting upon the debt you owe.

Well, they may not be that bad, but you will need to get a job and hope that you can find one that pays high enough wages so you can pay back your debt quickly. Or do you? Some people out there think that they can possibly avoid having to pay off their student loans right away if they would just stay in college a little longer…maybe part time, while they find the perfect job and save up some money first. Some even consider staying in college forever which may be a possibility, but is not really practical, and some universities have caught on to the ‘lifetime students’ and have begun kicking out those who have enough credits under their belt for four or five degrees.

Does Staying In School Work?

It could work, but it may not be the smartest thing to do after you graduate. The reason why graduating, getting a job and beginning to pay off your student loans is the best decision is primarily due to the same high-cost of education that got you into college in the first place. Let’s assume that you graduate from a four year university and get yourself a decent job over the summer, but decide to enroll in college part time in order to avoid having to pay back your student loans. Well, let’s do the math assuming your education cost you $35,000 in subsidized loans:

Assuming You Begin Paying Your Loan After Six Months

$35,000 payable over ten years is a $397.42 a month payment - ouch, that’s a good-sized car payment right there! Let’s round it up to $400 for ease of calculation. Over the course of your first year you are going to pay back $4,800 to your student loan and be about one year closer to being done with it forever.

Assuming You Stayed In College Rather Than Paying Back Your Loan

Well, tuition is about $1,500 for a part time semester. Toss in $200 for books, $50 for misc. fees, and you’re shelling out $3,500 per year to stay in school You save about $100/month for awhile and for what? To put off the inevitable? Maybe you think that you’re better off with your great job saving that money up right now until you can pay off a good chunk of your student loan right from the start. That amounts to spending more than $3,000 per year in order to save $1200 per year. It’s a net-loss situation for however long you pull it off, and when you are tired of going to school even part time and ready to face the music, you will still be $35,000 in debt.  Your payments will be around $400/month for the next 10 years, whereas your classmates who gradated the same year as you, are years ahead of you toward being financially free because they suffered the extra $100/month.

Now, of course this scenario assumed you took 100% subsidized student loans to pay for every inch of your college education. Most people have their education paid for by other means, at least partially…having a job, scholarships or grants, and don’t need to take out the full amount of a college education and won’t have that high of a payment when they graduate.  This makes staying in school part time even less attractive or even worse…if you have unsubsidized loans.  Having your interest accruing constantly until you get out of school and pay off the loans should serve as your biggest incentive to begin paying back that part of your loans ASAP!

Decision Time
Lots of people do it, but it doesn’t really save them much of anything in the end. Either you stay in school and continue to pay the college now and then pay off your obligation.  Or you pay off your financial obligation now and be done with it. Best trick of all is to get yourself a good job while you’re nearing graduation and start paying off your loan even before you’re required to!