Live prudently now to pay down debt later

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Live prudently now to pay down debt later

Feb 04, 2004

If students begin curbing all unhealthy spending habits while in school, academic leaders say they can trim the size of their pending student loan repayment substantially upon graduation.

Dr. Grant Turnwald did the math: if students saved the dollar a day that they would normally spend on soda, they'd have at least $13,000 extra dollars upon retirement at age 65.

Or put another way, they could make a $13,000 payment on loans. Though that might make a marginal dent in the debt load of recent veterinary graduates, Turnwald of Virginia Tech (VT) says every dollar saved is one less dollar paid post-graduation.

The average debt load of graduating veterinary students at Colorado State University (CSU), for example, is $73,000 - the standardized debt of many students, which can be higher or marginally lower at other veterinary schools.

Given that students may be "lucky" to land a job that pays $55,000, the financial burden of outstanding loans on new graduates obviously weighs heavy.

That's why financial experts advise students to get a head start on financial planning long before entering the job market.

Plan ahead

When students enter veterinary school at CSU, they're briefed on financial aid as freshmen and throughout their student career.

To stay ahead of the financial burden, Cheryl Hesser, CSU associate director of administration, advises students to start paying back loans while still in school.

"Attempt to make the quarterly interest payments on your loans because those really add onto the principal when students get ready to graduate," she says. "It's a big shock to students."

Once students graduate, they can refer to a bevy of Web sites for guidance on where to begin making payments. (See sidebar.)

Turnwald, VT associate dean for academic affairs, says students at VT begin talking about cash and debt during orientation. The first-year curriculum includes a personal finance course, which stresses the importance of saving toward retirement and cutting down expenses while in veterinary school. In another course, students develop a budget for their first year after graduation by factoring in the cost of living in a particular city.

Turnwald says, "I hope by doing that, we can get the message to them earlier on that if they are going to have any standard of living they need to minimize debt while in veterinary school and secondly, they are going to need to know how to negotiate for good salary when they start."

He adds: "Adopt a standard of living compatible with their debt load and income. Standard of living means the type of vehicle they purchase, house they buy or rent, how much they spend on entertainment, eating out and so on."

Adding to debt

Speaking of spending money they don't have, Hesser says that while veterinary students do "a pretty good job of being minimalists," she adds they have one soft spot: owning pets.

"Typically, they also don't have a pet, but they have menageries, which involve additional costs," she says.

Stretching their limited budget even further, many more students live on their own, without roommates, due to the rigors of the veterinary program.

Exit counseling

As students near graduation, as one last preparation for loan repayment, any school that disburses federal student loans is required to provide exit counseling for their borrowers, according to Sandra Murray, Student Loan Collections, University of Missouri (UM).

UM devotes a Web page to exit counseling (http://www.missouri.-edu/~muloans/exit.html), which explains that exit counseling is required for two reasons: 1) It fulfills the federal requirement agreed upon when a student signs his or her promissory notes; (2) It provides the student with valuable information regarding the repayment of the loans.

Consolidation options

Part of exit counseling may involve discussions on consolidating loans.

Hesser of CSU encourages her students to evaluate all consolidating options prior to graduation. "Otherwise, they're making more of these little payments of $35 to $50 each than if they had tried to consolidate into one payment."

Students can contact the consolidating companies directly. (They will consolidate any type of federal student loan, except Health Profession Primary Care Loans, which have special restrictions.)

Don't keep secrets

When new graduates find themselves in a financial crunch and unable to make payment, the biggest mistake they make, according to Hesser, is neglecting to contact their lender.

"The biggest issue is keeping track of where your loan is at and not being afraid to pick up the phone, call your lender and say, 'I've got a problem. I've got a job that's paying me $12,000 a year,' or 'I don't have a job' or 'We've run into problems at home.' Or 'My wife is pregnant and has problems carrying pregnancy and she can't work.' Whatever it is, if they let the lenders know, the lenders want to work with them."

For those who think it won't happen to them, Hesser says it happened to her current veterinarian, who was forced to default, but is back on track now.

"Lenders don't want to make borrowers delinquent, they don't want to put them into default, they want to get repaid," she adds. "The law allows lenders to work with the borrower as much as they legally can."