How to Avoid Student Loan Debt
If you insist on taking out a loan for graduate school, remember …
Don’t do it. That’s the easiest way for potential grad students to avoid student loan debt.
But who are we to get in the way of a career dream? So, if you insist …
Don’t take out anything more than you think you can make in the first year. Assume that you’ll be employed at a state school, not at a private school. Visit sites that list the salaries of state employees, and look up the salaries of people you know are assistant professors in your field. (It’s a lot more polite than asking people what they make.) Type in “state employees salary database” in Google and see what comes up. Many newspapers keep a database for muckraking purposes. If you’re in California, start here: http://www.sacbee.com/statepay/
Get federal loans at a fixed rate. Perkins or Stafford loans, for example, come from the government, and they have a fixed rate. You don’t want to get a private loan with a variable rate. That variable rate might seem low when you first get the loan, but it can go up based on market whimsy, and the market has been unusually whimsical as of late. At least with a fixed rate, you will have an easier time setting a budget.
More after the jump! Cover of Bleak House from Wikimedia Commons.
Don’t assume bankruptcy can help you. It is not easy to get out of paying for a student loan, even if you declare bankruptcy. Here’s a tale from the New York Times from 2008, about a man who faced a combustible cocktail of bankruptcy and private student loans:
Garrett Mockler filed for bankruptcy protection in December 2004, after months of struggling to make payments on credit cards as well as on $40,000 in student loans. He was working multiple jobs as a teacher, dancer and choreographer in Los Angeles after earning a Master of Fine Arts in 2003.
His lenders wanted more than $400 a month on top of credit card debt, Mr. Mockler said. “All my bills started piling up,” he said. “It was either pay one bill or pay another or not eat or not have a roof over my head.”
He had to scrimp to save $200 for the bankruptcy filing. Then he emerged from bankruptcy and found that all his student loans had stuck with him. While the federal government gave him more forgiving repayment terms on his guaranteed loans, he said, the company that had made him a private, or unguaranteed, loan had no incentive to negotiate a payment plan with him because he had no way to avoid the obligation. [Emphasis mine.]
You need to understand the distinction between the federal student loan and the private student loan before you get into this situation. The NYT article mentions StudentLoanJustice.org, which shares the stories of people who found themselves in debt.
If you plan on going to grad school, you must be smart, so take the time to read the fine print and consider worst-case scenarios before you sign on to any loan. Chances are you won’t wind up in the worst possible situation, but you’ll be a lot less likely to sign on to a loan you can’t escape, not even in bankruptcy.
Post Academic 
on June 25, 2010 on 7:06 am
If you need a masters to go into your field, how can you avoid getting a loan?
on June 28, 2010 on 7:42 am
That’s a great question. In most cases, you do need a loan, but some programs offer fellowships. It all depends on your field. No matter the program, you’ll need to consider a) the likelihood that your chosen program will help you get a job and b) how much you’ll make in that job.
Sometimes, a career that’s hot one day can be cold the next. For example, law school used to be a reliable grad school choice since a JD often meant a high-paying job, but that’s changed. Then again, some law schools offer scholarships, so scholarship students can go for it without fretting over debt.