The truth about student loans

Don’t go through life, grow through life. ~ Eric Butterworth

There’s a lot of shouting these days about how college isn’t worth it. I’ve recently written a piece entitled, Is college still worth it, to address this question. But a lot of the shouting around education these days has to do with student loan debt. The popular soundbites are often centered around the idea that college is no longer worth the money because college graduates are all saddled with so much debt that they can’t get on with their lives. Like in the piece, How student loans can impact your life, you see lots of claims about delaying home ownership, marriage, negatively impacting relationships etc… but you have to read these pieces carefully. There are a lot of qualifying terms like may do this, could do that.

Now I don’t want to play down the impact that debt can have on someone just entering adulthood and starting a career. There are certainly impacts that debt have and this is particularly true from students from lower income backgrounds. And having large amounts of debt of $50,000 or more can create significant financial difficulties for people with little to no net worth just starting a career. At that point, some of the impacts that may or could happen, become more real for students.

I remember watching a news report several years ago on student loans. They were interviewing a woman who had just graduated from college. The student had earned a photography degree from Cooper Union. The current total cost of attendance for one year at Cooper Union is over $68,000 per year, so that’s nearly $280K for a four year photography degree. Now there are those who will nitpick that the cost above is before financial aid. So let’s say you get a $10,000 scholarship, we’re still talking over $200,000 in costs, remember much of student aid is in the form of student loans. The average starting salary for a photographer is around $30,000 per year. So this woman, admitted she had nearly $200,000 in student loan debt and had just landed a starting job in photography in the $20,000 range. This means that even if extended out to a 30 year repayment period, her monthly student loan payment will be about $800 a month, nearly $10K, or half of her annual salary before taxes. This is an unbearable financial burden.

A note on how I calculated those costs, well, I personally left graduate school with almost $200,000 in debt and my payments when extended over a 30 year repayment were about $800 per month. So I’m quite familiar with what this costs. But there is a significant difference. The woman in the interview was angry and the salary for her chosen pathway would barely cover her loan payment much less her living expenses. I accumulated my debt or 19 years in college during which time I’d earned an Associate’s, two Bachelor’s and a Master’s degree. Additionally, I’d attended a year of law school and was a PhD candidate. While my initial salary right out of college was only about $40,000 per year, and trust me that meant my loan payments hurt. The credentials I had earned in college allowed me to move up quickly and only two years later I was making $90,000 a year, this was in 2004. Today I make more than double my 2004 salary and still have about $25,000 in student loan debt that I will have eliminated in the next year or so. So I’ve never been angry about my loans, as a first generation college student from a blue collar family, those loans were a ticket to a much higher standard of living for me and my family.

Here is the big difference between me and the angry young photography student. I was a much better consumer of the educational product I was purchasing. Please don’t get me wrong, Cooper Union is a fine school. If you have the means not to go into debt to attend, then getting a photography degree there would be a wonderful idea because I’m sure you would get a high quality education. Likewise if you could get a lot of scholarships and were in their engineering program it again might end up being an excellent return on investment. But choosing to go $200,000 in debt for a low paying job is not a very smart decision.

The truth of student loans is this. Student loans can be an anchor around your neck that delays you from buying a house, getting married, or starting a family. It can force you to take a job you don’t like due to the financial constraints the debt puts you under. Or student loans can be the mechanism by which you can access a higher standard of living than you would have otherwise had and create positive financial change for future generations of your family.

Students and families must make prudent decisions as educational consumers. It is imperative that they get wise counsel and assistance in making these decisions. Student loans are a tool to aid in getting a college education. Like most most tools, if they are used properly they can help you achieve amazing things. Also like most tools, if used incorrectly they can cause you great harm.