Is "debt" actually a big deal?

Paying for College
81

<p>I just want to hear someone's opinion on this... If I went to the best public university in my state (a school in the top 50 USNews ranking), I would need to borrow about 5000 dollars per academic year (mainly to fund housing, food, and other necessities) AND work about 15-20 hours per week throughout the year. By the end of my undergraduate studies, I would have about 20000 dollars in loans and worked countless hours just to get through college with the usual "poor college student" lifestyle. If I went to the honors college of a good public university in my state (located in the city I currently live in) and (a school not in the top 100 USNews ranking and perhaps not as nationally known as the other school), I would not need to take out any loans, and any money I earned through work would not need to be used to finance my undergraduate studies (free money I could use to buy things I want every once and a while and save for graduate study). </p>

<p>I know that I should go to the school that best fits me, but my family is going through some financial problems so this money thing is very important. Which one of the two situations seem the most reasonable, seeing as I also plan going on to med school (which ofcourse will require me to take out considerable loans).</p>

82

<p>Perhaps you could go to your local school and then transfer to the flagship two years later if the financial situation improves. If you get great grades at your local college, then perhaps you'd have a better shot at merit aid at the flagship too.</p>

83

<p>why do you say the school in the top 50 ranking fits you best?
If you were my kid I would tell you to go to the good public university where you would not have to take out any loans.</p>

<p>A lot of kids in our area stay local and do very well. A guy my kids went to high school with did his undergrad at a 3rd tier LAC - a school well known for taken "anyone who applies" - he got a very nice local scholarship and went tuition free and is in medical school right now.</p>

<p>Your success is not always about where you attend - if fact it hardly ever is.</p>

84

<p>Cel,</p>

<p>$20,000 is not an insurmountable amount of debt. That being said, however, you also indicated that your family is going through some financial problems. Is the $20,000 assuming that your parents can contribute significantly to the cost of your education. What if the financial problems affect how much they can pay? Unless you have a merit scholarship, then you need to consider that you may end up with more debt than you are anticipating right now.</p>

<p>Although you "plan" on going to med school, more than half of those who start out college planning on med school do not get there. So consider what would happen if you had significant debt and did NOT go to med school.</p>

<p>Lastly, you might want to consider the psychological stress associated with money problems. Might financial pressure and stress, and/or the necessity of working, affect your ability to achieve the grades necessary to achieve your goals? Or will the financial stress of you attending a more expensive school stress out your family? I know it is primarily your decision, but considering the impact on your family is always a good idea, independent of your final decision.</p>

85

<p>Thank you BCEagle91 and JustAMomOf4. You guys just basically confirmed what I have been thinking about for a long time now. I guess I just wanted to go to the flagship university right away because it was where most of my IB classmates were going, even though the local university would also provide an excellent education. I guess I just got caught up in hype of the flagship since all my friends praise it and bash the local school. Although the local school may not be that prestigious around the country, it is consistently growing, has a large campus, and will even open up a medical school next year. </p>

<p>Yeah, I'll go to the local school now, and if I like it, I'll finish my undergraduate studies there. However, if the financial situation improves and I decide the flagship would then provide a better education, then I'll simply try to transfer over. This should be no problem as the first two years of college will be full of pre-med and gen. ed courses wherever I go.</p>

<p>I don't really want to put another financial burden on myself and my family right now as things are not that great. If I took the loans out, I would have to do so myself as I don't want parents ending up with more debt. They say they can and will contribute, but I know they will have to struggle at home to do so. They work hard enough and don't need my extra selfish pressure...</p>

86

<p>And as others have indicated it might be better to go to the institution which won't entail the debt. For all practical reasons the education which sets the career is usually the graduate school and degree.
And since you intend to go to medical school lord knows you'll need the supplemental funding at that point.</p>

87

<p>In response to the OPs question, I'd say that an 80k debt would only be justified if you're choosing a lucrative career path. It isn't sufficient to go to a top school, you must also be majoring in a subject which could potentially get you a job in areas such as investment banking, management consulting, petroleum engineering, law, computer engineering etc. I know of engineering students from schools like Carnegie Mellon and Stanford, both of which cost in excess of 50k per year, land jobs paying well over 60-70k per year. The petroleum engineer from Stanford got a job from an oil company paying about 90k per year, since the job required him to be positioned in foreign countries for extended periods of time. Computer engineers from top schools who land jobs with companies like Google, Microsoft etc are also paid ATLEAST 60k per year, not including bonuses, which reach about 10k. Also, my friend from U Mich's Ross business school (a top 10 business school) landed a management consulting job from McKinsey. If you get a job as an analyst for a major investment bank on Wall Street, you are GUARANTEED to make ATLEAST 55-60k as base pay, with an year end bonus which could range anywhere from 10-40k, maybe even more, depending on the state of the economy. So yea, if you're planning to choose a lucrative career path, and think you can get a high GPA in a top school and land a good job with one of these companies, an 80k debt would be justified. I don't think your monthly payments for such a loan will be more than $800-900 a month, and if you spend wisely, paying that much a month shouldn't be a problem. </p>

<p>Many people talk about how graduates from top schools aren't making that much money. In response, all I can say is that those people didn't choose lucrative careers or that they didn't major in something marketable. If you're a petroleum engineer, banker, consultant etc there is no reason why you shouldn't be making close to 80k an year atleast a few years after you graduate.</p>

88

<p>"there is no reason why you shouldn't be making close to 80k an year"</p>

<p>Have you ever seen a highly-paid career category decimated by outsourcing?</p>

<p>"petroleum engineer"</p>

<p>Take a look at the chart of Valero Oil from 1980. Their stock oscillated from the low single-digits to about $12 a share for 24 years. Oil (and many other commodities) was in a secular bear market for quite some time and the job outlook wasn't always as good as it is now.</p>

<p>"banker"</p>

<p>One of those banker jobs at Bear Stearns might not be worth that much today. Same deal with New Century (major subprime player that no longer exists).</p>

<p>"Prediction is very hard, especially about the future" - Yogi Berra</p>

89

<p>And projections about proposed incomes versus loan debt have affected fields which were once considered safe bets. As evidenced by the selection below from the Chronicle of Higher Education, back in March. Additionally in a shaken economy its not to the advantage of employers to hire someone just out of school. Because of economic instability they have a field of potentially more experienced (and possibly desperate) people from which to chose.
From the March 11th Chronicle of Higher Education, </p>

<p>March 11, 2008
Medical Schools Ask Congress to Continue Loan-Deferment Program</p>

<p>Medical schools are asking Congress to reverse the Education Department’s decision to end a program that has allowed borrowers with high debt-to-income ratios to defer interest on their student-loan payments.</p>

<p>In a joint letter sent Monday, the Association of American Medical Colleges and the American Medical Association ask the chairmen of Congress’s education committees to preserve the “debt-to-income pathway” of the federal economic-hardship deferment.</p>

<p>That option allows college graduates with federally subsidized loans to defer interest payments if their total debt is more than 20 percent of their income and their income minus their loan payments equals no more than 220 percent of the poverty level. The option has benefited many medical-school students during the three to eight years they are in residency programs.</p>

<p>In 2007 the average medical student graduated with $140,000 in debt, and the average first-year resident earned less than $45,000, according to the letter. Eliminating the provision, the letter warns, could discourage students from pursuing less-lucrative careers in medical education, research, public health, or primary medicine.</p>

<p>And because of the speculative aspects of the SL market, what may have been a reasonable 20-40,000 student loan debt is often blown up to double or sometimes even triple that amount. This is often done by enhanced fees (as evidenced by the 200+% fee profits derived by some companies), bundling and resale, or the unfortunate necessity of a student or family to take deferments or inability to make full payments due to economic difficulties. Discounting the supposed bliss of students graduating in lucrative fields, the whole situation has been a disaster for the trades which once provided a safe haven for people originating from the working class. Such as schoolteachers, nurses, and many in the trades are struggling with debt loads which relative to their income are often appalling and impossible. As noted earlier the NEA has posted several very pointed essays about profiteering see "My Debt My Life" by Cynthia Kopowski in the January issue of the NEA Today. They are clearly concerned that the relative debt issue could destroy the ability to retain teachers. And it may not be a lucrative field, but just perhaps our society needs school teachers as much or more than speculators.</p>

90

<p>Despite all the doom and gloom predictions, a college education has generally been one of the best investments around. the Dale and Krueger study, often quoted on these boards found an average ROI on college tuition of around 30% for students graduating in the late 70s and 80s. Interestingly, they also found the HIGHER the tuition the higher the ROI, which they attributed to the greater investment per student made by the more expensive colleges. More recent studies have found an average ROI of around 12% for students graduating in the 90s. That is the AVERAGE. Some have a much greater ROI, some a smaller one. </p>

<p>The default rate on students loans for 4-year colleges is virtually non-existent. Most defaults occur for students at CCs, many of whom never obtain a a degree. </p>

<p>Clearly, the intended field of work should influence the amount of debt a student can reasonably take on. Engineers, lawyers, doctors can take on large amounts of debt without much impact on future earnings. In some low paying jobs such as teaching, loan forgiveness is often a option in exchange for working a few years in low income areas. Some civil service jobs also involve loan forgiveness. Some corporations will consider loan forgiveness over a certain period of time of employment or even as a straight hiring bonus. </p>

<p>Failure to obtain a solid education is a much greater risk to financial security than student debt. People sometimes don't hesitate to put their life savings to open a restaurant or retail store with notorious failure rates. Every successful venture requires some investment capital. If you analyze your future income stream as would a business, then certain investments will be required to make it grow. So far, nothing has shown to beat an investment in education.</p>

91

<p>
[quote]
Have you ever seen a highly-paid career category decimated by outsourcing?

[/quote]
</p>

<p>Most of the career paths I mentioned are NOT going to be outsourced. The only functions that investment banks, consulting firms etc outsource are back office functions such as operations/IT, not front office jobs which analysts do. And those back office jobs such as IT are not highly paid, it's the front office ones that are well paid. I'm pretty sure no one is going to outsource a lawyer's job, or a management consultant's job.</p>

<p>
[quote]
Take a look at the chart of Valero Oil from 1980. Their stock oscillated from the low single-digits to about $12 a share for 24 years. Oil (and many other commodities) was in a secular bear market for quite some time and the job outlook wasn't always as good as it is now.

[/quote]
</p>

<p>So? The point I was trying to make was that the salaries for engineering and management positions in major oil companies are pretty high. My dad works for Chevron, and all of his oil and gas buddies in Exxon, Shell, BP and Chevron are doing pretty well. Hitting 6 figures by atleast age 30 shouldn't be a problem at all. When I ask my dad how come his job wasn't outsourced, he says what I mentioned before, that only back office jobs such as IT, and call centre jobs get outsourced. If you go to a top engineering school and do well academically there, you shouldn't have a hard time landing a job with one of these major oil companies.</p>

<p>
[quote]
One of those banker jobs at Bear Stearns might not be worth that much today. Same deal with New Century (major subprime player that no longer exists).

[/quote]
</p>

<p>Um, Bear Stearns doesn't even exist anymore, so I'm not sure what you're trying to say. But consider the example of what happened with students who had job offers from Bear Stearns before it blew up. These kids were from top business schools like Wharton (U Penn) and Stern (NYU) and had job offers from Bear, which got rescinded after it was bought out by JP Morgan. But they had no difficulty in getting other offers from JPM or other firms, thanks in part to the excellent career services office of those schools, and also in part to the brand name of those schools, which helps a LOT when applying for jobs.</p>

92

<p>Concerning default rates, the problem cannot be entirely attributed to the hapless poor at the CC's. According to the US department of education the default rates between four year and two year colleges were as follows for these years; 2005 (for state schools) 2 year 5.2%, for third and fourth year 7.9%, graduating 3%. The same year for private schools; 2 year 9.0%, 2-3 year 6.7%, four year 2.3%. (USDOE, Inside Higher Education)
So yes the default rates are higher at CC's especially at private schools, however the default rates at the four year level are not exactly negligible, nor are these that much less than the CC's.
If overall default rates are considered with the various student loan formats (direct, consolidated, and and subsidized and unsubsidized) there has been a marked increase over the last few years. According to the USDOE, the weighted default rate for 2006 for FFEL was 12,27%, for direct 12.60%. For 2007 FFEL was 11.70, direct 16.65%. The 2008 estimates are FFEL 11.74% and direct 16.63%. (USDOE, Lexington Institute)
Granted the CC population may be a factor, but they cannot alone account for the substantial increase in defaults, especially since the overall default rates do involve four year public and private institutions.
And the projected default rates for 2008 are appalling, but given the current economic troubles its very likely these will be much higher than projected.</p>

93

<p>I am amused at the suggestion because Google hires and pays well, students can cover the cost loans. Yes, big G pays well, but the cost of living here is such that entry-level at G or any other bay area company won't give you the extra money to pay off 80K in debts -- unless you're going share a cardboard box alongside 101 with friends. Or maybe the plan is to live with mom and commute to work in the valley? :-)</p>

94

<p>"Most of the career paths I mentioned are NOT going to be
outsourced. The only functions that investment banks, consulting firms
etc outsource are back office functions such as operations/IT, not
front office jobs which analysts do. And those back office jobs such
as IT are not highly paid, it's the front office ones that are well
paid. I'm pretty sure no one is going to outsource a lawyer's job, or
a management consultant's job."</p>

<p>I recall the decimation of database administrators, positions in the
$60K to $120K area back in either the late 1990s or early in this
century. It can be pretty interesting to see what gets outsourced
when labor becomes expensive enough.</p>

<p>"So? The point I was trying to make was that the salaries for
engineering and management positions in major oil companies are pretty
high. My dad works for Chevron, and all of his oil and gas buddies in
Exxon, Shell, BP and Chevron are doing pretty well. Hitting 6 figures
by atleast age 30 shouldn't be a problem at all. When I ask my dad how
come his job wasn't outsourced, he says what I mentioned before, that
only back office jobs such as IT, and call centre jobs get
outsourced. If you go to a top engineering school and do well
academically there, you shouldn't have a hard time landing a job with
one of these major oil companies."</p>

<p>Well, I guess that is a qualification of what you originally posted
then. I think that this has a pretty decent future and did bet that
way back in 2001 with very pleasant rewards. This is an industry that
seems to be cyclical and your compensation can ride the waves of the
ups and downs of the business.</p>

<p>"Um, Bear Stearns doesn't even exist anymore, so I'm not sure what
you're trying to say."</p>

<p>Life is uncertain. Even when college grads are.</p>

<p>"But consider the example of what happened with students who had job
offers from Bear Stearns before it blew up. These kids were from top
business schools like Wharton (U Penn) and Stern (NYU) and had job
offers from Bear, which got rescinded after it was bought out by JP
Morgan. But they had no difficulty in getting other offers from JPM or"</p>

<p>CNBC May 23, 2008 - Officials at JP Morgan Chase have launched a major
round of layoffs in the firm's vaunted investment banking department,
axing dozens of executives in an attempt to downsize the unit amid a
massive slowdown in business, CNBC has learned.</p>

<p>People at the firm say at least two hundred executives were laid off
over the past two days - a move unrelated to the firm's recent
purchase of Bear Stearns.</p>

<p>And JP Morgan CEO Jamie Dimon is looking to cut even deeper into other
areas of the firm's workforce to reflect both the soured business
conditions as well the addition of employees following the Bear
Stearns purchase.</p>

<p>"other firms, thanks in part to the excellent career services office of
those schools, and also in part to the brand name of those schools,
which helps a LOT when applying for jobs."</p>

<p>Would you place a buy order for any of these companies right now and
hold the position for four years? Citis down about 60%. Goldman is
only down about 40%. Merrill is down about 60%. Lehman is down 70%.
BAC is down about 40%. One of the themes that sometimes shows up is
the transfer of wealth from the productive sector to the financial
sector. Or the transfer of wealth from Main St to Wall St. In case you
haven't noticed, Main St is fed up. I don't know if Main St is smart
enough to do anything about it but Wall St is short a bubble or two to
leverage up Main St so that they can collect the tolls.</p>

95

<p>TrinSF--</p>

<p>It happens. My cousin finished school (an MBA from Stanford) with about 125,000$ in debt. He spent one year back home in San Francisco with his parents in his old high school room and living VERY humbly (basically the continued life of a dorm student) with little to no luxury. Even though his salary was in the 150,000$ range he took public transport, didn't buy a new post-college wardrobe except the work necessities, never used his credit card, almost never went out, telling me stories about people at work always asking about his packed lunches while they ate ribs almost every day. </p>

<p>He didn't mooch (paid for food and gave them a few hundreds a month I think), he was just very focused on not living the rest of his adult life with this massive 6-figure chip on his shoulders. ALL his savings went into an account. (Dude was a bit insane if you ask me)</p>

<p>I kid you not, at the end of his first year he paid his off entire student debt in one single check. One. The year after he "jumped" into the high life moving to New York to take a job at the firm he really wanted with a down payment on this incredible loft.</p>

<p>It takes a lot of self-discipline and control (more than most have) but its possible. Its just that a lot of graduates tend to immediately want to jump into the high life, feeling that its deserved after so many years in school.</p>

<p>If I have to get into debt I will definitely try to follow his model afterwards.</p>

96

<p>"I am amused at the suggestion because Google hires and pays well, students can cover the cost loans. Yes, big G pays well, but the cost of living here is such that entry-level at G or any other bay area company won't give you the extra money to pay off 80K in debts -- unless you're going share a cardboard box alongside 101 with friends. Or maybe the plan is to live with mom and commute to work in the valley? :-)"</p>

<p>Back in the late 1990s we were hiring kids out of college and paying them some nice coin. We only hire from a select list of universities and even then, from only the top 10% of graduates. The local BMW dealer must have been very pleased. The transformation in our parking lot was amazing. I don't know whether they borrowed or paid cash (unlikely as they'd have had to wait for options to vest) but they certainly were helping the local economy. Then the tech crash brought people back down to earth. The job market tightened up, companies went out of business and the kids that were so sure of themselves a few years prior were now worried. The old timers that had lived through tech cycles in the past weren't that concerned. They continued to live frugally in the good times and socked away the savings and knew what they had to do to keep their jobs or when it was time to seek green pastures.</p>

97

<p>Well the aforementioned examples are very indicative of a disturbing social phenomenon. The relative proportion of income and potential being transferred over to financiers. Granted the one person did pay the toll in one year, but only by exceptional circumstances. One which given family obligations or other circumstances would be very difficult or impossible to emulate.
And given a cyclical economy and attendant job losses, the proportion of people in whatever trade they might be in, who are unable to pay the SL demands is very likely to increase. The projected default rates for 2008 range between 11 and 16%. Now that implies the proportion of those who can pay, but do so at the cost of economic marginalization is much higher.
One area where this condition may have an expanding effect will be that some will elect not to partake of high ticket educations, or even general higher education. That trend is already becoming evident at the gateway schools. In those which serve populations which were amongst the first to be hit with current economic conditions, such as rural colleges this decline is already evident. The upper echelons will not be immune, and concern is rising within those populations as is evident by discussions on this board, or articles and discourse about the issue on the Chronicle of Higher Education.
One of the hapless ironies of the whole situation is that the tweed jacket chattering class which provides the education for the elite, and everybody else-has already been caught in the dichotomies of education costs versus income versus a poor economy. Many profs are part timers, which scarcely compensates for the dedication and costs required to obtain the education necessary to be a prof. Others live at a standard much lower than their fore bearers and in some cases maintain even less economic status than their students. Others are having substantial moral debates as to whether they should remain in the arena for which they studied, and this debate is predominately defined by economic concerns. And its incredibly indicative of the root problem that the defining concerns and discussions are usually the debts incurred in the process of becoming a professor or collegiate instructor.
Perhaps a little indication that projections and anecdotes relating to the overall situation might not be too relevant for much longer. If the very people who are essential to higher education and its distribution are already preeminent examples that the balance is not working the entire system will not remain stable for very long. And if the balance has come unglued within academia its bound to come unbound for those who are its product. Some disciplines will be affected sooner some later, but none will be exempt.</p>

98

<p>I heard an ad for some organization called NH Student Loans and it really annoyed me. They talked about dreams and then gave the hypothetical example of a sports star with great grades that wanted to play football and study engineering in some other state and the assumption was that he would need loans. The ad basically assumed that anyone going to college, even with great stats, would need to borrow. Perhaps that's true. But they made it sound so matter of fact.</p>

99

<p>Unfortunately it's true, but only because of deliberate policy shifts by Congress, the executive branch, and the various minions in the department of education. </p>

<p>Essentially non loan aid has been shunted to the side in favor of policies which force most students to deal in loans if they wish to finish their education. That's very evident from the following stats from Alex Carter's "Making Sense of the Rising Costs of College". According to Carter, "the Pell Grant only covers 33% of a student’s annual college costs (in 1975, the Pell Grant covered 84%)" (Carter 2008) And "Pell Grants remained at the same level, affordability was not addressed, and state-tuition levels continued to skyrocket" (Carter 2008) </p>

<p>So what we are see since the late 90's is a incredible transfer of emphasis and money to the loan industry and a correlating reduction in emphasis and funds to grant and other non loan programs. So yes the edudebt industry can be matter of fact about how if a student wishes to go to university eventually they will get the students business. Or give them the business...</p>

<p>Not having heard the ad for NH student loans, thank whatever deities and their minions which provide such blessings, it's hard to comment in a specific sense. </p>

<p>But in a general sense the arrogance which the edudebt industry markets itself is very evident and without parallel. And various investigative bodies including congressional panels and the NYS AG have routinely commented on how misleading some of these ads actually are. But since the edudebt companies have been granted such incredible venue and because competing programs have largely been so marginalized perhaps that arrogance on their part is not misplaced. </p>

<p>At my institution its a routine practice for these companies to place posters implying the only agenda behind their loan programs is a beneficence which would shame Buddha or St. Francis. And they have placed brochures for debt advice which students presume to be by non profits but which are little more than fronts for subsidiaries which the SL companies control. And in regards to these supposed non-profits they have such close liaison with the state that the distinction between the two is difficult. However in my building the aforementioned posters keep somehow keep getting lost, must be anarchist students...</p>

100

<p>
[quote]
However in my building the aforementioned posters keep somehow keep getting lost, must be anarchist students...

[/quote]
</p>

<p>hee hee hee!!</p>