Jul 5, 2010

The Burden of Student Loans (Carole)

I ran across this video a few weeks ago on CNN.  Go ahead and watch it, and then I'll comment.

I've mentioned before on this blog, that my husband (and I, although the debts were not for my schooling) came out of graduate school with $60,000 in student loans.  This was back in 1986.  We lived extremely cheaply and only paid for tuition out of our student loans.  We were able to earn enough money during the summers and through my job (as a lowly secretary at the university -- so nothing amazing) to pay for our actual living expenses.  And, I might add, we never went on food stamps.  I'm troubled by this growing trend.  But that is another subject for another post.

It is easy to forget while buried in school and taking out student loans, that the day will come when all that money (with interest) has to be paid back.  Typically your re-payment begins 6 months after graduation.   This date arrives faster than you can imagine.   Most loan repayment amounts are several hundred dollars per month, but if you've got debt for graduate school they are often well over $1,000 per month.  That is a hefty portion of your brand new salary.  Can you really make enough money to live on after your student loan payments??  And most student loans stretch over at least 15 years.  That is a long time to be paying back this money.

Repaying student loans is no different than any other debt repayment.  Set up a debt snowball and pay it off as fast as possible!  But it is best to have a plan before getting into the student loan quagmire.  Here are a few ideas to contemplate:

*  Go to a local college or university.  As a state resident, your tuition is usually about half of what it would be if you are from out-of-state.

*  Become a state resident before you attend the school of your choice.  A friend of ours who was planning to attend the dental school in Las Vegas moved here a year early, got a job and established residency.  He saved himself $15,000/year or $60,000 total.

*  Get a bachelor's degree at a college that will not require you to live away from home or pay high tuition.  Save student loans for graduate degrees, not a basic college education.

* Apply for any and all scholarships possible.  Keep on top of these year to year so you don't lose them.  Many students lose these only because they didn't renew them on time.

*  Are any grants available for your program?  You never have to pay back grant or scholarship money.

* Do everything necessary to be at the top of your class.  Top students are often given research or teaching jobs that pay most or all of your tuition.

*  Choose your school wisely.  Do you really have to have your degree from Harvard??  Think about the debt you will incur (as this fellow in the CNN video  didn't).  Ask a mature adult who is good with money if this seems like too much money for your educatiaon.

* Determine if your chosen career path is worth the tuition money you will spend.  Last fall I heard a caller on the Dave Ramsey Show tell how she and her husband had over $200,000 in student loans for chiropractic school, and now he hadn't been able to find a decent job and they were getting very very frightened for their future.  Dave Ramsey informed her that (despite claims from chiropractic schools) these types of doctors do not make the same amount of money typically that an MD does.  He felt this couple had way too much debt for the earning potential of a chiropractor.  Do your research and make sure it is accurate.  Talk to people who are in your field to find out accurate salaries.

*Consider the location of your school.  Is it an expensive place to live?  Will your school debt be much, much greater because you have to live in New York City or Boston?  The mid-west is typically pretty inexpensive as are parts of the south.

I'm certainly not against education in any way!  In fact we tell our children that a bachelor's degree is a minimum and that a masters degree (at least) in their field will probably be necessary to compete in today's job market.  But don't fool yourself or "blue sky" these kinds of important decisions.  Student loans can add a significant financial burden that will follow you for half of your working life if you're not careful.

Like always, plan ahead and live frugally.  You'll always be glad you did.


Anonymous said...

This is excellent advice, and all those contemplating how to finance college expenses should heed the advice. The one thing I disagree with is what Dave Ramsey said. Unfortunately he provides a lot of misinformation. The income for MDs in general has declined over the years, in part due to HMOs. A chiropractor's earnings are on par with that of an MD's, all other things being equal (competency, personal/professional presentation, type of practice, geographic location, etc). This is true also of those in osteopathy. Although there are a few medical specialties that have somehow escaped the downward earnings, most have declined considerably in the past 20 years. It is no longer an economically sound move to rack up sky high student loans in order to get through medical school, unless going in to a specialty such as anesthesiology.

Kimberly F. said...

Good questions to contemplate. My parents encouraged me to go out of state for my bachelor's degree, and I'm very grateful. I was able to get enough grants and scholarships to bring the cost down to an in-state education, but I would have gladly paid a lot more money for the experience. The three and a half years I spent far away from my family and my safety net finally forced me to grow up. I still regard it as the best time of my life. Still, the money spent on an out of state or private school education should always be weighed against other considerations. When it came time to get my master's degree, I chose to get it in state.

This is kind of tangential, but I'm also really glad that my parents didn't pay for all my education. I think what they did was perfect for me - paid some, but not all, which made going to an out of state school possible, but also made me consider my choices and take school seriously - I was paying for it, after all.

Packrat said...

I didn't watch the video - maybe later.

I agree with your post. Also, just because one graduates from a "good" university doesn't guarantee that the graduate will get a better job or find employment sooner than one who graduates from a local college or university.

Kimberly said...

I think a valid point of the chiropractor analogy is to weigh the cost in loans versus the earning potential of the future degree. I'm not sure a business degree from NYU (taking the video's example) is $200,000 better than a business degree from a smaller school.

preethi said...

I think this is great advice. My one caveat is that I think particularly in educational decisions, the financial aspect is certainly important, but not the only consideration. Some institutions/ environments/cities may provide certain learning and growth (academic, personal, and spiritual) opportunities that others might not, despite having a higher price tag. Finally, certain degrees and school "brands" (including undergraduate, for certain programs) may provide greater long-term clout and networking opportunities than others might.

That said, I think it is ALWAYS important to weigh each of these considerations against the financial impact of the decision. Thanks for the suggestions!