Student Loans Are Not Free Money

Have you ever accidentally overheard a snippet of a conversation that made you want to jump in and give your two cents? It was 2009 and I was working on my master’s degree in Accounting. Surrounded by other Accounting folks, I overheard one of my classmates say “I always take the max amount in student loans even if I don’t need it. It’s like free money anyway.” WHAT?

The interest rate was 6.8% when I was in graduate school. That is a lot! Fortunately, I was able to pay mine off fairly quickly due to an unfortunate accident.

Although interest rates have since gone down due to the Bipartisan Student Loan Certainty Act, we still can’t think of student loans as “free money”. We can’t think of any loan as free money.

I started college with a 75% scholarship, but soon lost it due to my poor study habits. (Sorry, Mom and Dad.) Luckily, my parents were able and willing to put me through college so that I wouldn’t have to take out any student loans for my five years of undergraduate education. (Yes, I was on the five-year plan.) Many of my classmates needed student loans to help with books, tuition, and living expenses. The loans helped them achieve their educational goals. There were also students who took out student loans to modify their cars, buy new flatscreen TVs, or go on shopping sprees.

Loans are not free money. You have to pay them back, eventually. It may seem like many years down the road before you’ll have to start making payments, but some loans are accruing interest even before you graduate. Right now my husband and I are slowly paying down his medical school debt. Sometimes, no matter how big of a payment we make, it feels like all of it is going towards interest. The big principal amount doesn’t seem to want to budge.

Borrow what you absolutely need. It’s easy to think about all the other luxuries you could buy with student loan money, but fast forward to graduation and your first job. All your past debt slows you down from achieving your future goals like traveling, buying a house and starting a family. Smart money habits develop through constant repetition. The earlier you start making good financial decisions, the easier it will be for you to reach financial freedom.

What’s the most ridiculous money-related thing you’ve heard?

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