Scholarships vs. Loans? Rachel’s Dilemma

In my $150,000 Scholarships post, Rachel made the following comment:

I am the mother of a college bound student you provided with this information. I am having a hard time getting her to apply for the scholarships. Her sister is 31 and still repaying student loans and she feels Sissy knows the right way to proceed because she is financially secure in her career. I’m so thankful you sent this so she can see that although the loans are there, the scholarships are much more beneficial for her. I wish I’d been financially able to save that small amount from her date of birth, even at half the interest rate you suggest, It would definitely make the entrance into the first year of community college for her so must less stressful for ME. God willing she’ll apply for them before the time comes she’ll need them for the University she plans to attend. As for those who feel what you say is nothing more than a dream….without dreams how far would any of us go. Many Thanks.

And thank you, m’dear. Let me say a bit more about scholarships, student loans, saving, etc.

Student loans are definitely a great thing. I think few of us (and certainly those who visit this site!) would be where they are today without them. But they are an industry unto themselves, and they drive the entire college system. The entire University-Industrial Complex is built upon the availability of student loans, right? I’ll explain.

I mean, come on — do you REALLY think it costs $30,000 (or whatever ridiculous price tag you’re paying per year to send your kid to school) to deliver your student’s education to him/her? Of course not. Of the price you pay for college, a relatively small portion of it goes toward actually educating your student. Billions are spent on lavish student services, recreation facilities, entertainment, creature comforts, etc., and those billions have to be paid back via your tuition. And the tuition bill for these phenomenally entertaining and comfortable environs is giant, and without student loans, most of us couldn’t afford to pay it, and the college know that perfectly well.

So, in essence, you have a lot of college financial aid offices who bullshit students about student loans. What they say is, “hey, only take student loans if you really need them!” but they know perfectly well that, if everyone followed that advice, that sparkling new creme-de-la-creme $200 million student lounge and residence complex wouldn’t exist.

But I digress a little. Long story short: Student loans have built the modern university. And the government is the most lenient lender you’ll ever have to worry about. Obama will not send minions to your house to repossess your diploma if you don’t pay (don’t try it with your taxes, though). THAT SAID: realize that this is simply what most students will do; not everyone. If you want to be in the same debt-saddled, possibly crippling financial situation as a great number of your classmates, then take student loans out the wazoo and never think twice.

But if you want a different outcome from most of your fellow students, then you have to do things differently.

I don’t think I need to argue the virtues of why scholarship are better than loans. That seems self-evident. But just in case there are still some head-scratchers out there, I’ll give ‘er a couple sentences:

Free money is free money, and like free beer and free food, you should NEVER turn your back on free money. Student loans are NOT free money; it’s money you pay for, and you actually pay MORE money than you actually receive. Here’s an easy analogy for you:

1) Go to a restaurant. Order whatever you want. Seriously, appetizers, booze, main course, dessert, the whole nine. Eat it. It’s delicious. And no one’s even asked you for any money yet! Oh wait, then at the end of the big party, the waitress hands you a tab for $77, before tip. That’s a student loan.

2) Go to your mom’s house. She feeds you a delicious meal. You are full. You pay nothing. You may have sacrificed some taste and extravagance, especially if you dont’ have one of those “let me make all your favorites, honey” moms and instead have one of the “frozen pizza and a Mountain Dew” moms (hi Mom!). That’s a scholarship.

Is it possible that you’ll be bailed out of student-loan debt hell by a super high-paying job once you’re out of school? It’s possible — but rare. One piece of advice I’ll give you, from personal experience, is NOT to get fooled about a high salary quickly bailing you out. Probably not gonna happen. I’ved owned an advertising agency for 9 years as of this writing, and I’ve been paid a six-figure salary for at least five years now — and I still have $20,000 or so of student loan debt. Granted, I took my loans in the mid-90s and locked in very low rates so I have very little incentive to pay any of  it off early, but I’m just saying: I graduated from undergraduate school 14 years ago and graduate school 11 years ago, and I still have a Toyota Camry’s worth of debt to the government.

I was in college for six years (four undergrad, two grad), and during the grad-school part, I had a family to take care of. Student loans saved my ass, and I’m not down on them. But it’s an old, old lesson that not only students, but the entire world, is getting smacked upside the head with these last few years: Know what you need, and don’t borrow more than you need.

That may save your ass, too, in the coming years. Good luck! And Rachel, good luck to you, Sissy, your daughter and all involved. Feel free to comment or argue or whatever below in the comments section.

Best,
“Judge Josh” Barsch