I wanted to show this to my daughter. Lots of sites to choose from.
https://www.dollartimes.com/loans/mortgage-rate.php?length=10&amount=30000
$30,000
4.5% Interest
10 years
$310 per month
Your numbers look right to me. Here’s another site that confirms that: https://www.budgetworksheets.org/debt-payoff/debt.php?amount=30,000
And $310 per month is a lot when you are just getting out of college, even if you are making a good salary.
If there is another option, your dd should be looking at the most affordable college.
That’s about right.
And it IS a huge hunk out of a starting salary. If someone starts at $36k per year, that’s $3000/mo, so 10% of gross pay.
I assumed before either daughter went to university that if they took on any debt at all, then I would be left to pay it off. Now that I have a daughter who has graduated, it appears that I was correct.
Neither daughter majored in computer science, engineering, or nursing. If you have a major that leads to a job right after graduation, then $30k in debt might be easier to deal with.
The 10 years will put her to 30 years old or so. Yikes!
She knows how much we are going to contribute, so it will be up to her to pay anything additional.
She is a NMF so she is looking at Alabama, but she’s not excited about going there. Hopefully she’ll have a good visit!
I’m going to provide an alternate view. Some folks have car payments that are in excess of $300 a month. In my opinion, a college education is well worth the Direct Loan debt that students can incur in their own names…it’s $27,000 total, and the payments would be $300 a month or so for ten years. Of course, if the kid gets a higher paying job at some point, they can increase their payments.
And if possible, perhaps parents or grands can give money towards repayment as gifts once the kiddo has graduated.
Yes, it’s similar to a car payment, but without the car. You might still need the car to get you to work, so that’s another payment.
My niece actually had the $36k job, and decided to live close enough to her work to be able to walk. No car. She actually had a car but couldn’t afford the parking, registration, or insurance so left the car at her parent’s house. The apt is expensive and for her first year she couldn’t afford the student loan payment, but was lucky her parents paid it. Really, it was that tight. Her first raise and she started paying her student loan. Now in year 3 she has a few cents left over to have some fun but she’ll turn 26 this year and will have to add health insurance to her paycheck so hoping her raise is enough to cover that.
It’s always something.
It is a tough decision deciding on student debt. I hated being married and still paying off a student loan.
Yes debt is higher but in the 80s guaranteed loan rates were 9% so $10,000 was $127/month. I also had a $10,000 car loan at the same rate.
Salaries were definitely lower. Engineering salaries are almost 3x what I was paid, so loans are about the same.
Do remember having fun but not much free time. Work paid for grad school - nights for class and weekends to study. I paid off the car loan, student loans and finished grad school in 4 years. Maybe being raised in a family with less taught me how to live off less. I didn’t feel burdened, just my portion of my education in addition to work study and summer jobs.
Students can do the income-driven repayment plan.
https://studentloans.gov/myDirectLoan/ibrInstructions.action
Income driven adds to overall interest. For some reason, one of mine is being charged more than 300.
The thing about the 36k salary- after taxes, it’s about 2400/mo, if that. If rent, utilities, etc, is 1000, maybe food is kept to 200, a 200 car payment, then 300 to the college loan, you start having less for fun, discretionary things like dinners out, clothes, a weekend away. etc. How many young adults pack their lunches? At the same time, we want them to save, have an emergency fund, etc. First time they run up the credit card, it’s trouble.
The idea they can easily manage is more theoretical than practical. And we’re talking 10 years, maybe more.
I don’t think my son will need to take out any debt, but he is a planner by nature and asked to live at home for 2 years after college graduation when he was 16. His goal would be to pay off any debt/or save 50-70% of his income for those 2 years. We told him we would take care of the same things we currently cover (housing, food at home, car insurance, health insurance, and cell phone bill) for those 2 years. It would be a matter of how fast he can find a job as a computer engineer in our large metro area, but he would be able to work through a 30K loan in about a year ($2562 per month at 4.5%) assuming a 70K starting salary under his plan. It is definitely harder to manage on your own with a lower starting salary.
Stafford loan rates increased to slightly over 5% starting with loans originating after July 1, 2018 for undergraduate. So those payments would be just under $320 a month for 10 years.
https://studentaid.ed.gov/sa/types/loans/interest-rates#rates
Another factor to consider, and I put S through this exercise, is “lost opportunity cost”. Say you had no debt and invested that same $310-$320, per month into an S/P 500 index fund for 10 yrs. And then let it sit until your 60 (forget about continuing to invest as I wanted to make this an apple to apple comparison). You’re talking about a swing of hundreds of thousands of dollars with a 7% return - realistic with dividends. That’s what the loan really cost.
S had the option of lower cost no loan, higher with cost loan. This may surprise you. He chose higher cost with loan. His reasoning was: better environment for him, more rigorous, brighter overall student body, better networking, better outcomes all will lead to a better job / salary which will enable him to pay loan off sooner AND invest along the way.
I had to reign him in by telling him change the phrase “will lead to” to “could lead to” because it’s up to him to make that happen. That said, I think he made the right choice and is tracking towards a likely better outcome. Fully understand that might have happened anyway, anywhere. No real way to tell. different conversation.
I remember going to college, and having loans in the package and just signing without really understanding. Then adding some law school loans. Luckily all paid off in 10 years from law school graduation, but what a chore. My parents weren’t the best about explaining all of that, learned by trial and error. As a result, I’m adamant my two girls will come out of undergrad with no debt. If they choose grad school, that’s on them. But everyone has a different view/perspective.
@rickle1 - good point with the lost opportunity cost.
Perhaps someone should do this calculation with medical school debt and show all of the high school senior pre-meds.
Actually, the AAMC has done it for the case of $200,000 in federal loans for medical school, but that is far from the worst case (since most admitted medical students get one offer, they do not have a choice to choose a less expensive one): https://store.aamc.org/downloadable/download/sample/sample_id/240/
@ucbalumnus - ouch
I put $200,000 into the calculator and got these results.
$200,000
5.0% interest
10 years
$2,121 monthly payment
And if there are Parent Plus loans to enable the student to go to his/her “dream school” then the payments are even larger.
We cobbled together college costs with merit aid, need-based aid, loans in the students’ names, work study, and pay as you go (from income and savings). After D1 graduated, I paid off the balance of her loans ($20,000-25,000) using money from our much lower interest HELOC. I have since paid that back. I made the same offer to D2, but she chose to pay back her own loans, about $12,000, herself. She has a raincheck for the gift.