Suze Orman Says "Never Take Out More Than What Your First Year Out Of College Will Pay You"

Financial guru and bestselling author Suze Orman encourages parents and students to avoid dangerous student loans as the student loan crisis in the U.S. has reached alarming levels. Here's what Orman said about these types of loans. 

The number of people taking out student loans has grown exponentially over the years, and so has the balance. Tuition costs have steadily grown and have been adjusted for inflation. For example, public four-year colleges have increased from $4,160 to $10,740 over 30 years. This means the average student at a public college will need to borrow $32,637 just to obtain a bachelor's degree. 

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According to data obtained by Forbes, Washington, D.C., has the highest student debt, at a staggering $54,708.52 per borrower. Data from the Education Data Initiative shows that the country’s student loan debt is currently $1.727 trillion, with 92.8% ($1.602 trillion) outstanding federal loan debt. The remainder consists of private loans.

Orman believes that student loan debt is one of the worst kinds of debt you can incur. She bluntly said, "Student loans are the most dangerous loans you can have, bar none." 

Student loan debt is now the second-highest debt the average American has, with mortgages in first place. The problem with taking out such large student loans is repayment; for many, this debt follows them throughout most of their adulthood. Around 20% of adults with undergraduate degrees have outstanding student loan debt, and only 20% of those adults have paid off their student loans. 

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Orman shares her thoughts on the growing problem saying, "What we're doing is allowing our students' futures, America's future, to be laden with such horrific debt that we are literally crippling the economic growth of our country," She added. "It is horrible, horrible, horrible."

According to Orman, Americans’ problem is a lack of financial understanding when taking out these loans. Many people are not practical when thinking about how they will be able to repay these loans. Orman blames this on the current high school system. 

"It's a travesty that the high school system doesn't make every student and parent pass a student loan exam before taking out a loan," Orman said.

Orman explains that many kids who take out loans from banks do not understand that they are non-dischargeable. So when the loans go into deferment, they don't realize that the interest keeps growing. 

So, what does Orman suggest? 

"The rule of thumb is never take out more than what your first year out of college will pay you." Said Orman. 

Instead, Orman encourages students who need to take out a loan to ensure it is manageable, such as $30,000 or $40,000. You can pay this amount off as long as you stick to your plan and ensure your debt does not go into default or deferment. Another option, according to the financial guru, is to consider a community college. Orman believes that too much emphasis is placed on expensive Ivy League schools. Personally, Orman would not send her children to one of the $100,000-a-year schools even though she could afford it. 

Many parents feel pressure to send their children to an expensive Ivy League school, but Orman urges them to be frank about finances with their children. She emphasizes, "Going into debt for the rest of your life at an exorbitant interest rate that cannot be discharged in bankruptcy is not something that you want to be doing." 

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