We see it every day. College graduates (some of them not so recent) saddled with the repayment of school loans that is quite frankly eating their lunch. It is becoming apparent to me that we are not doing a good enough job helping our students do the simple math of the loans. The simple math of how much to borrow and what is will actually cost you to repay the loans. Borrowing is the easy part, repayment is the bear. It is obvious that the lending institutions are expecting the student to figure out how much to borrow and the students still live in the la-la land of “someday they will be making it big and will have plenty of money to repay whatever loans they incur”. What is worse is that many parents are taking a cavalier attitude towards preparing their students to navigate the loan game. Seems that everyone these day put themselves through school walking up hills both ways in the snow with a full time job.
$40,000 to $50,000 a year sounds like a lot when you are bumming gas money from friends and parents and living off Raman Noodles. But that same salary after taxes, rent, utilities, gas, food and entertainment leaves them thinking that they had it good while they were in college. US News and World Report recently published a study that 70% of college graduates are leaving college with close to $30,000 in student Loans. Forbes recently reported that average annual salary for all majors is close to $40,000 per year. Put those averages together and what you get is pressure for the average college grad. And if you add Master or Doctor to the name you have a potentially lethal concoction.
What’s the math you say?
- If you borrow $30,000 repayment is $350 a month*
- If you borrow $50,000 repayment is $555 a month*
- If you borrow $75,000 repayment is $832 a month*
- If you borrow $100,000 repayment is $1110 a month*
*According to Bank Rate Calculator with 6% interest repaid over 10 years.
And heaven forbid that you marry into another student loan. When a $30,000 loan marries a $50,000 loan they have a $905 monthly payment. And if one of them wants to be a stay-home parent when the kids come. Look-out simple life-style!
Are we saying you shouldn’t get a student loan? No, the college degree is still a very strategic tool to land a great job. But let’s not mortgage our future at the school debt counter. The main point is to develop a strategic career plan and do the math!
Tim Howington is Executive Vice President for Freedom 5:one and is one of our Financial Life Coaches. He lives with his wife Terri and son Josh in Rogers Arkansas.