Wednesday, August 27, 2014

Scotch Nature: Student Loans

I'm wading into the deeper end of the "not broke" pool today with student debt.

Let's start with a case study of a bight young married couple: he has graduated a protestant seminary and she has a BA in music. He wants to be a youth pastor and she wants to be a homemaker who helps in the "praise band" at church. The problem with this lovely plan is that they have a fairly modest level of student debt, $80,000 and $40,000 respectively believe it or not this is me likely understating how much money they are likely to owe with these degrees.

Now student debt, currently, has a very low interest rate, but guess what, it never goes away the principal amortization most people pay are akin to mortgages. You cannot bankrupt out from under it and it is one of the only things that will garnish even your social security. So let's say they only pay 2% interest.

Our bright young couple graduates(you still have to pay even if you don't) and amazingly gets their dream jobs. He now makes $21,000 per year as a youth pastor and she makes $3000 leading the praise band. They are now paying $2400 per year in interest. So instead of staying home with their first child she now has to go get a part time job making $12,000 per year while paying $6000 in child care and other expenses of working outside the home. Do I really need to say that their marriage isn't as happy as if they didn't have to pay a tithe  to their debt before they even have tithed their church?

I am currently enrolled at my local state university for 12 credit hours this semester my bill came to a bit less than $2500(I'm not living in a dorm). If I were trying to do a whole BA in four years it would likely be less than $3000 but let's round up.

So if you aren't paying for dorms(you live with your parents) a full four years would come to around $24,000 at about $6000 per year.

Now let's go back to our young couple and assume they both worked part time, got as many hours as possible at a state or community college, and only have an aggregate student debt of $40,000. $800 in interest expense a year still isn't good but it isn't going to derail your personal or professional dreams.

Other options include:

  • GI Bill: This is probably why grandpa didn't have a student loan payment, he exchanged a few years of shooting commies for his education. This is being stupidly tightened up by our government but it still is there.
  • Student Loan Forgiveness Programs: For example a friend of ours went to teach at a poor rural school that didn't pay very well but would forgive her student debt in 5 years, probably boosting her real salary by $10,000 per year. Another friend did even better with social work and a masters degree in the same.
  • Higher Paying More Employable Fields: Let's face it $120,000 in medical school debt is a lot more manageable than $120,000 in seminary debt.(or at least it was before Obamacare) So go into some STEMM field that will get you a salary that can actually pay off that debt, because the only thing sadder than a Feminist Art History major working at Starbucks is one who also has a 100k in student debt.
Of course if you want to save your children or grandchildren from this particular learning experience you could make interest work for instead of against you by socking some money into a 529 account. It does give you some tax benefits,  just don't expect immediate gratitude unless you have very mature children/grandchildren. That comes later when they see that they can buy a house or feed their families without food-stamps while their college friends can't.

2 comments:

  1. Very true, and the 'dirty' side of education that no one wants to talk about... It's not fun when you're in your late 40s and STILL paying off student loans.

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    1. Ironically the same six figure professors are the ones writing papers about "the rich" squeezing out the middle class.

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