Debt. Is it worth it?

Parents Forum
41

<p>" But in 2010? Right now (and for the near future) it seems very, very wise to keep debt loads to a minimum. Not only may there not be a job that pays well . . . there may not be a job, period. "</p>

<p>If there are going to be no new jobs for grads between here and 2015, we all have plenty of bigger concerns than which schools youngsters go to. </p>

<p>I would respectfully suggest, that if these projections are true, than anyone who owns a home rather than renting, or has any investment in equities, is probably also making a substantial mistake.</p>

42

<p>There are schools that are worth going into some debt for. It depends on the dream school and it depends on the amount of debt.</p>

43

<p>Hey guys, can someone post some numbers on the amount of debt???</p>

<p>Is $10,000 debt per year worth it? It’ll accumulate to $40,000 after you graduate. Is $40k debt really really bad?</p>

<p>Suppose someone plans to make ~$50k starting salary. Then how much debt should he/she go into?</p>

<p>Like, I don’t know how much “a lot of debt” is!!! Quantify please!!!</p>

<p>(I’m also HS senior, weighing on whether the investment is worth it.)</p>

44

<p>a general rule of thumb some use is that student loan debt should not exceed one year of your expected starting salary. </p>

<p>But thats only a rule of thumb. The following questions are worth asking - is it all Stafford/Perkins debt, or private loans that are less easy to adjust in the event of economic difficulties? Will your parents be in any position to backstop you if your income ends up less than you forecast? And of course, does it matter enough that you are willing to live more frugally than your peers when you graduate? Take a roommate when your friends have their own places? Take the bus when your friends have cars? etc. </p>

<p>And of course that still doesnt tell whether its “worth” it, without knowing the choices. And the person.</p>

45

<p>aStyle</p>

<p>That $10k.yr will accumulate to more than $40k – the interest accumulates even if payments aren’t being made. </p>

<p>Are you making the $50k at age 22 with a Bacelors degree or are you going directly into grad school? Keep in mind that if you are going to grad school, you won’t afford payments until AFTER grad school. While in grad school interest continues accumulating on the $40,000 loan.</p>

<p>Assume your $40,000 (plus accumulated interest) is financed over 10 years from the date you finish grad school and is from a private loan – You can run amortization schedules in the same manner as a mortgage loan, so lots of calculators out there – See how much it comes out to a month.</p>

<p>Now determine cost of living in your region of work – certainly much cheaper in Alabama vs. Cali. Your average apartment rent and food budget could be anywhere from $700 - $3,000 depending on where you live and lifestyle (some careers you must partake in the eating out/drinks after work style so don’t be too stingy on food budget).</p>

<p>Now figure out your age, the average cost of a wedding and a starter home. Don’t forget about your spouses debt too. If the loan goes beyond age 35, you now have to worry about adding a child to the financial mix as biological clock is ticking…</p>

<p>You can see how the $40,000 can snowball quick if marriage, house, child, health (your parents health even), don’t adhere to your “planned” time line.</p>

<p>For my Family and region-- $10,000/year is acceptable and necessary for most middle-income to attend college. But I come from a state that doesn’t have cheap options.</p>

46

<p>Brooklynborn is about right but to give you an example of how my son handled $50,000 of debt. He worked summers and saved some money so at graduation he made a lump sum payment of $10,000. He also reduced his need for debt by using summer and winter earnings. He decided to live at home when he graduated in May and the rest of his $40,000 in debt will be paid off by either Dec or Jan of this coming year. He was fortunate to get a good paying job immediately out of school. Next year he will start grad school debt free.</p>

<p>Was the debt worth it? He graduated from MIT and has been very fortunate so he thinks it was well worth it.</p>

47

<p>I like Brooklynborndad’s rule of thumb, but I wonder if there is a calculator which, in addition to showing what the P&I on student loans will be, also gives a sense of all the other expenses involved in living on one’s own (food, rent, utilities, insurance, gym (because you no longer have the university’s), meals out, other entertainment . . .) in different regions.</p>

48

<p>Every bit of debt any of us acquire takes away a little bit of our freedom. Buy a house, you have a mortgage to pay and you just can’t leave without severely damaging your credit. Same with anything else. Most of us will have to take out a certain amount of debt over our lifetime, but when you take out too much you create your own little prison. Do you want to owe, owe, owe or have more options at your disposal? </p>

<p>It is really hard to truly know what you will want out of life after UG, but if you decide you want to do something that doesn’t pay a whole lot you won’t be able to if you owe a lot, unless of course that is the only thing you can find to earn a living - then you are in a situation to watch your debt grow. No fun. Don’t limit yourself at such a young age.</p>

49

<p>I apologize for the Harvard bashing. I also know a graduate “from Boston” who is a complete prince of a man. I shouldn’t have retrieved the awful memory so casually – but that’s the thought that popped in my head; “Going into big debt to wind up . . . like THAT?” </p>

<p>One of the things that is so challenging is for a young person to truly understand is what a debt load is like. The numbers don’t seem real – and each family’s situation is so individual that it can be hard to find a way for a teen to grasp what it will be like for him/her to manage a monthly payment of $$$ in four years time.</p>

50

<p>There are so many factors that go into this kind of decision and all need to be weighed–quality of flagship school, quality of expensive school, major, future prospects, amount of debt needed to be taken on, state of the economy, future plans, to name a few. </p>

<p>But a good rule of thumb is to avoid massive amounts of debt at your young age. It can affect future life choices, like buying a house, marriage and having kids.</p>

51

<p>If you’re interested in grad school, you should focus on attending the most prestigious university you can</p>

<p>I disagree with this point. In graduate school admissions, what you do at your undergraduate college is far more important than where you go. I don’t mean that you should pick the lowliest, cheapest tier-4 school; but you certainly don’t have to go to the #1 school for your major to get into graduate school. There are a variety of situations in which you can be intellectually stimulated. I’m in a top 10 program in my field and students here run the gamut from HYP-type schools to “where is that again?” schools.</p>

<p>Not to say that top schools can’t give you an edge - but it’s not so much the name recognition as it is the 1) recommendations from big professors and, more importantly 2) the resources, classes, and experiences you will have.</p>

<p>Anecdote: I took a full scholarship at a second-tier LAC over nearly full pay at Emory. 6 years later I’m in my third year of a doctoral program at Columbia with an NSF Graduate Research Fellowship as well. Also, be aware that the top departments in many fields are not at private schools but are at large state universities - for example, in psychology there are top privates but some of the best schools are Michigan, Wisconsin, and Berkeley; for public health the top 10 list includes Berkeley, Michigan, Minnesota, and UCLA.</p>

<p>What kind of resources does your state flagship have? Are people doing research? Personally I think undergraduates should try to stay near the Stafford loan cap, which is $30,000 total. I certainly wouldn’t advise borrowing more than $40-50K total and that would depend on your field, average starting salaries in it, what you were planning on going to graduate school for (I’m in a PhD program with a fellowship so it’s covered, but if I was planning on going to medical school - gotta keep that debt down) and whether your parents are well-off enough to help you pay down your loans.</p>

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<p>Great advice from Brooklynborndad:

</p>

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<p>OP, just remember that if you are eligible for some financial aid, one of the top schools might actually be cheaper for you than the local state university. Even if it it isn’t, your dream school might be more affordable than you think because of more generous endowments. So unless you are certain your parents earn too much money, why don’t you go online and run their income and asset data through a financial aid calculator? Also, my son’s Ivy did reward his good performance his first year with more aid the second year, in the form of an endowed scholarship.</p>

54

<p>*a general rule of thumb some use is that student loan debt should not exceed one year of your expected starting salary. *</p>

<p>That should really only be for those who are majoring in fields that have a high likelihood of a good starting salary…however, I would still try to underestimate the starting salary just to be safe. </p>

<p>I think the best rule of thumb is $30k max. That gives you a loan payment of about $345 per month…about the cost of an extra car-payment. VERY few newish graduates can afford to pay an extra car payment in addition to their own living expenses and any REAL car payment…for 10 long years.</p>

<p>Awhile back we asked people on CC…at what point after graduation are you SICK and TIRED of paying back student loans because of the impact on your current life. I think the consensus was about 3 years.</p>

<p>Students of other majors often wrongly overestimate how much they’ll be earning upon graduation and then either start with a lower salary or are unemployed for awhile.</p>

55

<p>“I think the best rule of thumb is $30k max.” - That sounds wise. </p>

<p>I am always surprised when reading about student contemmplating much larger total debt for UG. Even if that made sense, where would they get large loans? Parent co-sign?</p>

56

<p>My husband is a CPA and financial advisor. He has many physician clients (all specialists) who are in their mid-40s and are * still* struggling to pay off their medical school debt. Just because you are a high income earner doesn’t mean having a large amount of debt isn’t going to adversely affect your lifestyle for many years to come. There’s a big, big difference between $20,000 debt and $100,000 or more in debt.</p>

57

<p>1moremom,
"Like MiamiDAP, we are very debt averse; until now our only debt had been a mortgage and H’s undergrad loans. But, we are feeling like we made a good investment wih this one. "</p>

<ul>
<li>Well, I am more extreme than you imagined. No mortgage, never any undergrad loans. Our own UG and Grad school tuitions were paid by various employers and our son’s tuition was paid out of our paychecks, while D’s UG is tuition free because she has chosen to go to state school that gave her many Merit scholarships (I believe she has about 9-10 of them, very nice package). We are planning to pay for her Grad school also, but this is still a plan that could be interrupted by one of us loosing job or some other financial difficulties, will hope for the best.
My H. is an engineer so I am aware of job market and compensation in engineering. I personally would not take any loans to go to engineering. But again, this is my personal preference. Both of us also have MBA, which I would not take loan for either.</li>
</ul>

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<p>There is no way that a 17 or 18 year old entering college could predict what their future will be. You just don’t know what major you will end up with (most kids change majors), or where your job will take you…as a matter of fact you just don’t know what life has in store in terms of the little things that come up that could send your financial situation on a roller coaster. </p>

<p>Here is my story…My husband was employed by the same company for about the last 15 years. Then one day at the age of 50+, he and his entire division was let go. The company downsized their space in New York, and most of the work that my husband was managing was sent overseas. He had an offer to relocate to their new campus located in another part of the country, but we had refused because we wanted our son to have the medical care that we had established here, in the event that a organ transplant would be necessary. Who knew at the time, that another job would not be around the corner.
After two years of his not having a job, we were now dipping into money that we never planned on using. Eventually we bounced back when the business we worked hard to establish, started to bring us into the black. Now here we are again, in the middle of this recession and our business has taken a turn, and once again we are dipping into the money we never wanted to use. </p>

<p>The point that I am trying to make is that every person needs to understand the risk that they are willing to take. We were fortunate to pay off the small mortgage at about the same time my husband lost his job. Our property taxes are high but we have lived very modestly especially for the area that we live in. Again, this is something that kids need to understand…when you come out of college with debt, you can not buy that car that your friends just bought even though you are making more than they are. You will not be able to meet friends for dinner and drinks in the city Friday and Saturday night. Heck, you may not be able to do many things, but only you will be able to gauge whether you want those loans paid off sooner rather than later. The debt is an albatrose that hangs over your head like a black cloud. Every month you watch that debt grow and you have to decide if the car, social life, weekends away, and your general wants are going to be put on hold…and this is only if you are fortunate to be able to land a job that allows you to live with your parents. Not every graduating senior has this option and many find themselves in another state with real adult bills which include the rent, utilities, health insurance premiums, cell, cable, car and insurance, clothes and food and of course I have left out all of the incidentals that add up. It is just not easy paying off that debt and if you are diligent about doing so you are consciously choosing to give up many things. </p>

<p>I have watched my son make choices that I am very proud of, but the fact of the matter is, he could have been having a much easier time and he certainly would not be living here at home with mom and dad. However his decision to live at home for a year is not the worst thing and after the loans are paid up, he is able to move on with his life without needing to live with the albatrose hanging over his head. I will say that most college grads are not this lucky to have a job a commutable distance from mom and dad or even a mom and dad who welcomes the kid home. These are the type of things you want to think about…and be realistic. Here we are in our 50’s and we have had to start over, we lost a nice comfortable income, started a new business that did’nt make money for a long time and here we are again trying to figure out how to turn things around again. We are older and have years more experience on this earth than a new college grad yet we are at a time of our life when many friends are retiring or traveling. Our kids are approaching the age of financial independance yet we are still years away. We made choices to send our kids to schools that we considered important enough to invest in…and it really was because the kids themselves were worth investing in. We have no regrets about any school decisions but that is because we knew our kids had an understanding of what debt meant. They lived through our lean years and we felt comfortable that they would not be holding this growing debt longer than they needed to. </p>

<p>To all of the 17 and 18 years olds about to consider debt that is more than $10,000 a year (providing it is a great school with the prospect of a high paying job) think long and hard about your future, how you want to live after college, and why that dream school is the place you want to be. Now is the time to be honest with youself, and to think about how you feel when you can’t afford things you want to do now because of a lack of money. Are you the type of person that gets upset when you can’t meet up with friends, or buy the things you want, or take out that cute girl that you have wanted to date? Try and imagine the same scenario after college. You will be faced with deciding many of the same things but you will also have the adult bills to consider. It is not easy and thats what so many of the parents here are trying to tell you. Life throws us curve balls and sometimes all of the planning still does not prepare you for some of the obstacles that may come your way. </p>

<p>Taking on debt is one of those things that a person needs to be honest about. Don’t be fooled into thinking that just because you have a great diploma hanging hanging on your wall that the world is going to be at your feet. It is the college grad that goes out into the world and says nobody owes me anything and I need to prove what I am worth. That MIT degree was not my sons password to the magic kingdom it was an experience and an opportunity that he appreciated and nurtured, and upon graduation he was just very lucky.</p>

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<p>When DD was a junior in HS, after the BC calc AP exam her class had a personal finance project. I think this was a county mandate, or maybe a Virginia mandate, I am not sure. Among other things, she was supposed to come up with a budget for living, show how much she would save, etc. Since she was kind of overwhelmed, and I didn’t think that in this instance parental help would undermine her education (i sure didnt help her with Calc) I joined her and gave her pointers on excel, on the research, etc. We settled on chicago as a place she would realistically be willing to live, but where the COL wouldnt make the project too hard. She assumed she had successfully graduated in Arch, and used Craigslist to get a potential entry level job. We then used CL to get an apt she would feel comfortable - we found somewhere mid way up the north lake front, to be comfortable but not too expensive. We assumed no roommate, but gave her an efficiency apt. We assumed no car, and found out what a monthly transit pass costs in chicago land. We went through costs for food, clothes, extras. Oh, and, IIRC we assumed a student loan payment. She began to get a sense of trade offs, constraints etc. </p>

<p>Now its not like she thinks about it everyday, and lots of it could be unrealistic - I mean who the hell knows what job she will get, or if she will feel deprived when a coworker jets off to paris for vacation, while she has to take the Bolt Bus home to Virginia. But I think it was a useful exercise, to get her thinking - without that one tends to the unrealistically ambitious, or the overly despairing. Reality is somewhere in between.</p>

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<p>Why Corvettes Cost Less Than College
By Froma Harrop</p>

<p>That was a pleasant stroll across the Ivy League campus of Brown University, in Providence, R.I. I saw the gardening crews, the maintenance trucks, the pricey restoration work on Faunce Arch. I passed the skating rink, the president’s mansion and the new Department of Facilities Management building.</p>

<p>As I surveyed the handsome spread (tax-exempt, sadly), I wondered, “Is all this really necessary – I mean – for the education of these students?”</p>

<p>Such subversive thoughts are hardly original. “A whale ship was my Yale College and my Harvard,” Herman Melville, the author of “Moby Dick,” famously said over 150 years ago.</p>

<p>Bill Gates recently predicted: “Five years from now on the Web for free you’ll be able to find the best lectures in the world. It will be better than any single university.”</p>

<p>A year at a university costs an average $50,000, the Microsoft founder and Harvard dropout said last month. The Web can deliver the same quality education for $2,000.</p>

<p>Yet American colleges continue to float in the bubble of economic exceptionalism once occupied by Detroit carmakers. American median income has grown 6.5 times over the past 40 years, but the cost of attending one’s own state college has ballooned 15 times. This kind of income-price mismatch haunted the housing market right before it melted down.</p>

<p>Tuition at the private University of Southern California has risen 360 percent since 1980, to $41,434 a year. At the University of Illinois, a state school, the annual tuition of $13,658 is six times that of 1980. These numbers are all adjusted for inflation and don’t include room and board.</p>

<p>As the father of a student at Kenyon College told me, “It’s like driving a new Corvette to Ohio every September, leaving the keys and taking the bus home.”</p>

<p>American universities now rake in $40 billion a year more than they did 30 years ago. And most of that money isn’t going for academics, according to Andrew Hacker and Claudia Dreifus in their book, “Higher Education? How Colleges Are Wasting Our Money and Failing Our Kids and What We Can Do About It.”</p>

<p>For starters, the money is going to more numerous and more pampered sports teams. Duke University in Durham, N.C., spends over $20,000 a year per varsity golf player. And these squads rarely pay for themselves. There are 629 college football teams, and only 14 make money.</p>

<p>The number of administrators per student at colleges has about doubled over 30 years, according to Hacker and Dreifus. Their titles point to such questionable duties as “director for learning communities” and “assistant dean of students for substance education.”</p>

<p>Compensation for college presidents, meanwhile, has soared to corporate CEO levels. Vanderbilt University in Nashville, Tenn., pays its president $1.2 million a year!</p>

<p>Universities are also competing to make their on-campus experiences more like a resort than a bookish monastery. Some dorms feature granite counters, kitchens and walk-in closets. Fancy health clubs have replaced musty gyms.</p>

<p>What else are students getting in return for their enormous college bills? Some useful contacts for the future and four extra years to figure life out.</p>

<p>And they do receive an education, though the quality doesn’t seem to justify the rising costs. Full-time faculty members are being paid more for teaching less. Some elite colleges now offer sabbaticals every third year instead of the traditional seventh. Harvard has 48 history professors, and 20 of them are somewhere else this year.</p>

<p>The market will eventually recognize the out-of-whack economics of today’s “place-based colleges” and intervene. Some day soon, Web alternatives will let students of modest means try their hand at a college education. And what a great day that will be.</p>