I think one consideration for the debt should be the situation the new graduate will be in too. Will he have a car or will he need to get a car and car payments too? Can the student live at home for a year or two to get started? Will the major likely result in a job? Can the parents help out with security deposits, furniture, travel home for Christmas?
I have one who will graduate as an engineer with just a little debt (about $10k). It’s likely she won’t have much trouble paying this off and will be able to take a job just about anywhere, pay rent, buy a car, etc. I have another one who is a history major and will have no trouble finding a job (she’s a good worker) but it won’t pay much. She has more in debt (about $20k), and will have to consider that debt when deciding if she can take a low paying job in another city, afford an apt., afford a car.
Unfortunately, it is often those who can’t really afford the debt who have to take it.
State schools ARE average but provide a good education. The good thing about state schools is that the tuition is very low compared to a private college or OOS. I was in your shoes months ago where I was waiting to hear back from my dream college. I didn’t get into my dream school. However, that didn’t mean I took a GAP year. I went on and attended my state school. To be honest, I love it and with the decent price, I’m actually happy. If you want to go and get your masters or Ph.D. go to a state school.
The risk assessment is highly dependent on your ability to perform an honest self-assessment, your goals and how likely you are to stick with them. If you not only know you definitely want to go into IB, that you will 100% not change your mind, that you are a kick ass salesperson/articulate type and that you will be in the top 10-20% of your graduating class, then you can easily take on more student debt to go to certain expensive colleges (don’t have your list in front of me, but think it included Duke, UPenn - great examples) because you’re likely to be able to get an IB or consulting job and pay it off fairly quickly and painlessly.
But if any of those things aren’t true, then you’ve taken on greater debt than prudent and you might not have the six figure job to clear the debt.
If you’re serious about IB or consulting, most state schools (UMich and UVa being some exceptions) will give you a good education at a bargain price, but your chances of getting an IB or consulting job are very, very low. So tthat path is a risk as well in that you’re effectively ruling out an IB or consulting future if you choose a state school education to avoid debt.
I with I had a better answer, but this is a very similar issue to what my son wrestled with as well. As a family we’re hugely debt averse and very live-below-your-means types. My husband and I both put ourselves through college with almost no debt (which was paid off in less than a year). I buy cars with cash and drive them until the wheels fall off. All that being said, taking on some debt to get one of the few degrees from a school that will get you into your planned (and quite lucrative) career does make some sense.
If I had a dollar or every kid that wanted to go into IB or consulting…
The reality is, most wont make it to IB or consulting, and the few that do burn out in 1-2 years. So no, it’s not worth the debt gamble. If you are good enough for IB or consulting, you can get there from a good flagship. I know many, many graduates of flagshipst that make it every year. They are the cream of the crop at their schools, of course.
UMich and UVa are just as expensive as top privates unless you are in-state. Graduates from UMich, UVa, and Berkeley have just as good of chance getting into IB as other top tier privates. It is not the case for other flagships. It is a matter of whether the IBs recruit there.
IB hiring is cyclical folks. It was relatively easy to get a job at a top tier bank in 2005; it was close to impossible in 2009. Large global employers set hiring targets a year in advance, and then based on business results, overall economic climate, leading indicators in key markets around the world, etc. trim or add to the targets.
I could tell you today how many new grads Goldman Sachs is going to hire out of the class of 2019 but I’d be wrong. And even MORE wrong for 2020, 2021, etc. The people who run recruiting aren’t morons; a soft business environment means fewer people hired, period full stop. And if any of you knew what the business climate was going to look like in 5 years, you wouldn’t be posting on CC.
Do NOT make the decision to take on debt when you are 17 because you are going to get a job in investment banking when you are 22.
Period full stop.
Take on debt (at a reasonable level) because that’s the only way to get yourself a university education which fits your academic and intellectual needs. If your choice is the local college which offers degrees in early childhood education, recreation management, and “pre-health” (preparing students for allied health/ultrasound certification) vs. your state flagship (every major under the sun) then that’s a discussion worth having if you aren’t interested in the programs your local college offers. But not because you know you’re going into banking and are going to make 6 figures right off the bat and will be sitting in clover-- but because your intellectual goals can’t be met at the local/cheaper option.
So many talk about six figure jobs as though you are taking home six figures. If you make six figures and you are working in an expensive city where the rents are high, it is NOT possible to pay off these loans in a few years (short of living at home and taking a second job). It is going to be REALLY hard to be a professional and work at home (unless your parents own a townhouse downtown-which is not likely since you needed to take loans in the first place). The way to do it, is to work during school and summers ( hard all Summer). This will keep some money in your pocket and stop you from running up credit cards. Also, six figure jobs aren’t really going to 22 year olds. 25 year olds maybe ( most having a Masters).
There are so few that can be in investment banking. Never met a single person from a state school who did it. ( Not to say it can’t be done but think about it). In tech you might have a better chance as the skills are hard not soft so they can tell if you can code. I think it’s a mistake to go into debt thinking you are going to get recruited by Goldman. Not going to happen. And if you end up in consulting you will be working very long hours and traveling so it might be hard to work a second job.
Beyond the IB unicorn, a huge debt consideration for normal undergrads is if there’s any plan to go to graduate school. If you think you’re going to be taking out big loans for medical or law schools, for example, then keep your powder dry for that fight instead of going huge right away. As ethereal as an IB career can be, medical school always costs a ton and many more kids who lock in on it at 17 actually stay the course and borrow the money.
Many high tech companies are paying 6 figures (base + bonus) to new graduates and they do no have masters. Most of the time they do not want or require masters.
Most new graduates do not get paid 6 figures, therefore it is not a good assumption to make when figuring out how much debt to incur, but some sort of reasonable assumption needs to be made on potential earning.
If parents aren’t willing and able to repay any loan in excess of the student loan, I wouldn’t take it. How can you assume potential earnings when you can’t be certain that you’ll graduate with a degree in your major, or that your GPA will make you competitive for those 6 figure jobs, or that you’ll graduate into a market that can support new hires? If parents can’t pay out of their salary, I think it’s risky to assume a new grad will be able to pay more than the federal loans out of theirs.
Everyone will agree that taking out as few loans as possible is best. That number will definitely change depending on career path and school that you will attend. If you are fortunate enough to go to a target/semi target school and have a high GPA there is a pretty good chance that you will find that IB/Wall street job. If so, your salary will be as mentioned by @oldfort a six figure income. Yes, living in NYC is expensive but you will not buy a car, need insurance pay for auto repairs etc. Yes, cost is still higher but not as high as you would think when you actually do the math. These bright high achiever kids get into these schools that 85% of the population cannot. Those that achieve high GPAs from these schools get interviews. To the OP, check linkedin as well as the colleges career services depts find out about past grads etc. What firms recruit on campus? That info can help you make your choice. Google target schools for Wall Street. Even with that type of job there still is a ceiling to the loan issue. Talk with your parents as they will have to take out these loans. The thing is, when you talk about a topic you talk in generalities.There is always the outlier, the Community College student or grad from a nontarget school who made it to a top firm but the masses do not. These firms hire students from schools that they have had success with in the past.
Best of luck with your selection
I don’t know OP’s stats or accomplishments. But the schools he has asked sbout in other threads are not the uber competitive. So I have to wonder.
IB doesn’t pay all a big salary. Sure, my young friend started over 100k, but she was one of less than 1% of applicants hired, had impeccable credentials, in and out of class, (impressed even me.) Went to a top 5 college. Ok, a top 2. And even she left after starting to burn out.
My kid, in a different field, makes a great salary and has trouble paying off her 27k. Life happens.
The savvy don’t assume everything will work our per their 17 year old dreams.
A simple answer would be anything your parents would have to co-sign for. That’s a big trap with private universities… There is no bachelor’s degree that I’m aware of that’s worth $250,000, even if it says Harvard.
My daughter is an incoming IB analyst. Her base salary will not be 6 figures. Good thing that she will not have much time to spend money with her 90-100 hrs/week work schedule and most food will be provided for free.
If she had to pay back student loans it would all be about the bonus. Most of these analysts do not survive past 2 years. You really need 4 big bonuses to pay back a sizable loan. Big bonuses may or may not happen.
By the way, in her group of 7 interns there were 3 students from an average state flagship university and they all got full-time offers (the MD was an alumnus).