Hi everyone,
There are many posts here asking about the wisdom of taking on copious amounts of debt to fund an undergraduate degree. I think its difficult for kids to imagine the long term consequences of those decisions because they simply have no context. If any of you have stories of how debt has affected your lives, career choices, future decisions etc. Maybe you could share them here so the next generation will have some idea of what to expect.
I majored in Classics and I owed $30,000 in student loans. It took me ten years to save up enough money to pay it off. I had to live very frugally to do it. I bought a car in 2001 and sold it in 2016. Most people around me were driving newer cars, taking vacations, getting new clothes, having the newest phone and other things.
My nephew and his wife had a combined $120,000 of debt after college. They are working hard on it, and have it down to $90,000 or so, but are putting off children, house, etc. He will be 30 this year. Obviously they are happy they both chose that private school and met each other, and they are using their majors in their work, but it has to be rough keeping up with the payments.
A niece has a degree in Animal Science and other than a short stint working at an animal sanctuary for minimum wage, has been living at home and working at McDonalds since graduating, working her way up in management though. I don’t know the amount of her debt.
My 6 nieces and nephews are all either in college or paying for it. My DD’19 who is in the college search can get some unrealistic ideas and I think it was good for her to hear some reality from her cousins at Christmas time. She is now set on a school that will either be debt-free or very small debt.
When I graduated college, my debt meant that I could not take the nearly-volunteer work needed to make myself into a viable grad school candidate in my major field. I ultimately changed fields completely, and after finishing my MS in the other subject area, spent the first two years of married life working and using my income to aggressively pay down my college loans while my husband and I lived on his grad school stipend. We drove an inherited car, lived in married student housing with thrift shop furniture, and took advantage of all of the free or dirt cheap entertainment at that university campus. Things would have been tougher if I hadn’t married as I would have needed to use some of my income to pay living expenses, and would not have been able to shed the college loans as quickly.
Since then, the only debt we have taken on is for car loans (we drive the cars into the ground) and our home mortgage. Happykid finished college with only the junior and senior year federal loans, and is headed to grad school this fall fully funded for her MFA. Other than the remaining 10k or so on her student loans, she has no debt either. She plans to continue paying down her student loans (auto pay) while in grad school so as to be nearly finished with them when she graduates.
My daughter has only $15,500 in loans. We are in the process of buying a car and she found out that she needs to plan for $160/mo in loan repayments, her half of the rent, and car insurance. Doesn’t leave much for the actual car payment.
As we were setting up the financing for the car, she was punching in numbers and she could see what a difference of $1000 was. One thing I didn’t like to see was the car salesman pushing 60 and 72 month loans. Cars do last longer now, but I hate to see her planning to be paying the payment on what will be an 8 or 9 year old car (it’s a used, 3 year old car now). That’s a piece of finance that I don’t think kids understand.
Same with student loans. Making a student loan payment of $300 may be difficult in the first year when salaries are low, but it is painful in year 8 or 10 when you’ve been making that same payment for something you ‘bought’ so many years ago. It’s $3600 a year you can’t spend on something else.
I have a masters degree with $50k in loans. I consolidated them over 20 years and still the $300 payment is rough. I had to do a forbearance twice, since we’re mostly a one income family. After about 4 years since graduation, I’m finally at a place where I can make the payments, have a house and a car payment, and still put some money in savings. It’s tight, though. I don’t regret getting loans for my masters degree.
If you get an education, it’s important to be sensible about it and not get yourself into too much debt. I got my education at an inexpensive in-state universities. If I had spent much more, the payments would have become unmanageable and landed me in big financial problems. Just last year, we had to spend $10,000 replacing our flooring, getting a new roof, and putting in a new backyard fence. That’s more debt we have to pay off, but we’re able to pay it off quickly because my student loan payments are manageable. Had that happened with $80k in student loans, we would be forced to sell our house to pay off the renovation and possibly downsize…assuming we would be able to buy a house at all.
We had a late in life surprise baby which has put me in a community of younger families again. I feel for these women who would like to take a little time off (like more than 6 weeks) to be with their baby but can’t. They can downsize most everything… Home, cars, cable… but those student loans are immovable. We are talking 30-year-olds in a lot of cases, not a 22-year-old right out of school.
I borrowed the max for grad school but had no loans from undergrad. My spouse borrowed for both.
We were in a little denial about our debt early in our marriage until we applied for a mortgage- then it was in black and white and MUCH bigger than we had thought. We quickly scaled back our housing expectations. I went back to work almost immediately after my kids were born- my company didn’t have a maternity leave policy at the time and so going without the paycheck AND making the loans would have been possible but very tight.
In the end, we paid off all the loans early except for one very, very low interest government guaranteed loan from a program which no longer exists.
Fast forward- borrowing was the right decision for us. I tripled my income with my first job out of business school compared to what I had been earning with a BA. My spouse’s ROI was less dramatic (he was in a higher paying profession before grad school) but both of us had careers which probably wouldn’t have launched as quickly and as lucratively without the MBA’s from the “fancy” schools. 35 years later my degree is still paying off- I know a lot of people who do what I do and I’ve gotten plum positions faster and with less time spent “paying my dues” because people assume that I’m smarter than I am. My spouse has worked for companies with a clear divide between what the “top” MBA’s do and what the other ones do- and the “top” jobs pay a premium both early and mid-career (it either evens out in the end or everyone is dead from the stress).
We always lived beneath our means due to the loans- and the day I paid off my loan I opened the first college savings plan for one of my kids and put the amount I had been paying against the loan into that account.
Our plan worked for us. It won’t work for everyone. First- we had good health, and are still married to each other (I never take that for granted). Second- we grew up with a lot less money than what we were earning when we launched our careers, so we never assumed that going to Cancun or Aspen for a long weekend was something that people did (our friends at work did- we did not, we never missed it). And therefore- we didn’t need as much house, nice cars, etc. as some of our more affluent friends-- we were already doing better than our parents had done, why show it off driving up in a BMW? Third- we both genuinely liked our work. If one of us had wanted to quit to open a frozen yogurt franchise or become a nursery school teacher, the loans would have been problematic. But if you like or love what you are doing AND it pays well AND it allows you to pay off your loans quickly, it’s a good way to go.
My alternative was to keep my day job and do a part time MBA at night. That still would have required some loans and it would have taken forever to pay off-- the field I was in gave a small bump if someone got an MBA, but nobody was going to triple my salary the day I finished the night school degree the way they did with the full-time program.
The ROI from undergrad isn’t financial necessarily-- but in many ways, my degree in Classics is more useful to a corporate career then an MBA so I’m forever grateful to the generous alums, the taxpayers of the US,and my alma mater for the aid I received.
YMMV.
I’ll share our story along with that of a relative.
My husband and I both had full tuition scholarships. My husband was an RA to cover the dorms at his school and I lived with my parents and commuted to a public state school for my junior and senior year (went to community college for the first two years). So we both graduated without student loans but for different reasons. (We did not know each other at the time). Not having debt let us both contribute to retirement accounts in our 20’s, so we’re getting the benefit of compound interest, and we also had decent savings to contribute to the down payment on our home. With no student loans, and aggressively paying down our mortgage, we paid off our home in a major metropolitan area within 7 years. We are now approaching 40 and have zero debt, and it is an amazingly freeing feeling. I say this not to brag, but to show the impact that not having loans can have to any students reading this thinking it is no big deal.
I have a relative that we are very close to that had a very different experience. Kept looking for the perfect school and went to at least 2, possibly 3, schools with student loans paying for most it (most co-signed). Changed majors multiple times and took around 6 or 7 years to graduate. Because of massive student loan debt, this relative is always struggling. At one point when their car died and needed to be replaced, they ended up with a high interest loan due to the amount of debt they had between the student loans and their mortgage. They wanted to sell their house and move at one point to get their kids into a better school district, and couldn’t afford to without their parents helping out extensively. Every home repair is an emergency, because they really aren’t able to save. Their largest monthly expense other than the mortgage is the student loans. It has a major impact on their quality life, including ability to vacation, go out to restaurants, etc.
When I read posts where students ask about a full ride vs paying 20, 30 or 40K per year for a dream school (with parents co-signing) I always want to gently shake them and say, think of your future self! Don’t end up like my relative!
Just don’t. It will ruin your life.
I know someone who is 66 years old, still working, taking Social Security, and has more than $200,000 in student loan debt. He has made various attempts to get off the hook for the debt but has not succeeded, although I suppose he will when he dies.
@rosered55 When did he get his degree? How many degrees does he have???
He spent several years working on a Ph.D. in the 1980s but did not get the degree. He then went to law school in the 1990s and while he did graduate, he has worked at “undercapacity” for someone with a lot of debt.
He can get it discharged if he is declared fully disabled. Even then he has to declare it as income to the IRS and ask them for forgiveness of the tax debt.
I think he tried unsuccessfully to be declared fully disabled. Because he’s not.
I had a 1/2 tuition scholarship to undergrad in the 90s - took out loans for the rest. I did my MA - took out loans to fund the first year but had a full scholarship to fund the second year. I had a 1/2 tuition scholarship to law school and took out loans to fund the rest. I had a six-figure debt at the end of it. I pay $600/per month on a 30 year low interest loan.
I will be paying off that debt long after my children have graduated.
However, without that debt I could not have pursued the education I wanted.
Very difficult to know at the time whether the debt will be crippling or will be a good investment.
For my own kids, I advise limiting debt as much as possible.
I received a full tuition scholarship, which allowed me for freedom to change my major when I realized that I didn’t care much about medicine (I was more interested in the social justice aspect of health).
This decision to go to a school where I graduated with no debt allowed me to travel during undergrad, take a service-based international fellowship in my field after graduating, and not be stressed about money. I’m also looking into starting my own social enterprise in a few years, after I’ve built a greater nest egg. If I had loans, I don’t think I would have ever been able to make that decision.
My cousin on the other hand took out 120,000 for his BA degree at a private university. And by “he” I really mean his parents, who co-signed the loans. 5 years later he is still living at home, unemployed, and dealing with mental health issues (that presented themselves during college) and the debt doesn’t help the immense stress that he and his parents face.
My sister took out loans in the late 90s (as a 20 yr old) for a degree that she couldn’t finish due to finances, and was able to finally pay them off when she wasn’t in her late 30s.
Not having debt (or minimal debt) is a great way to start yourself on the road to financial freedom.