How Much is Too Much Student Loan Debt?

There are two basic categories of families in the United States. One is where most people have not gone to college. To them, a college education is the doorway to a better life, with wealth, an interesting career, and greater social standing.

The other type of family is one in which most people have gone to college. To them a college education is an absolute necessity in life. It maintains social status, wealth, and job security.
Both of these family types will send any student possible off to college at the first possible moment, regardless of whether or not the person knows what career might interest them. Thanks to the efforts of very well-meaning social activists, some parents don’t even think they have to spend a penny to do it. After all, student loans are paid with future earnings, right?

Parents of both types, and students in general, need to adjust their thinking to fit reality. A college education does have benefits in job security and pay, but only after it has been combined with experience in a given field. With the exception of highly sought-after fields like engineering, most entry-level jobs pay about the same, degree or no degree.

Let us say, for the sake of argument, that a college graduate plays it safe and searches carefully for a job with lots of growth potential. Within a year, he or she lands something that pays about $24,000 per year, after taxes. Your rent is generally 30% of your income, so about $8,000, or $750 a month. Yes, this is why many new grads still have room mates. I think we can all agree that a student loan payment of 30% of your after-tax income would horrific, but let’s go with it for now.

At a rate of 6.8%, which is all too possible, a payment of $690 a month for 10 years borrows $60,000. You could go for an extended payment plan, but you give up rights to deferments and forbearance. Plus, the interest is so much of the payment right now that it won’t shave it in half anyway. $60,000 over eight semesters is only $7,500 per semester.

Borrowing over $100,000 to go to school is almost guaranteeing that you’re going to fall behind on your payments. No matter what more expensive schools tell you, no place can guarantee you a job. At the very least find a school with an internship program where the people who are your future bosses went to the school you’re attending.

What can you do to keep your loans down? Quite a bit. Don’t look at college as one chunk of your life. Consider working in your chosen field a bit before going off and getting a degree. Many community colleges offer transferable credits (always check first). Even if the credits aren’t transferable, it’s a less expensive way to explore. It’s also worth stopping after an associates or bachelor’s degree, and then finding a job that will pay for continuing education. One brilliant scientist I know went to a tiny department in a state school when he found that grad students in physics were in demand. He worked his way through with few loans, and then let several Ivy League schools compete for his attendance.

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