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I am a huge fan of education and there is little doubt that on average, people with college education earn more than high school graduates. However, I am not a fan of student loans. Especially those that require parents to either borrow the money or co-sign.
When I was 17, starting college, I don’t think I gave much consideration about how much I would earn with a certain degree or what it would take to repay student loans. It was just about getting to live on my own, away from home and well, you know, enjoying college.
Personally, I believe there is a complete lack of education about money in general, and debt in particular - especially for college students. No one ever sits down with the college freshman and explains the fact that you will need to earn a minimum of $x dollars per year to repay $x of student loans. Nor is there a discussion about how much you’ll most likely earn with your degree.
For example, if you borrow $150,000 at 8% (not an unusual interest rate for private loans), repaid over 25 years, the monthly minimum is $1160. That amount is post-tax earnings, meaning you will need to earn just about double at $2,320 per month.
To think about it another way, let’s assume you get a job earning $50,000 per year. After various taxes, insurance, etc. at 40%, let’s assume you net $30,000. Of the net amount, you’ve already committed 46% to student loans, leaving only $16,000 to paying for food, gas, housing, entertainment, etc. Unless you’re living with your parents (which defeats the whole purpose of going away to college), $16,00 won’t be enough to live on.
I am seeing more and more recent college graduates who are in this exact predicament with very few options. Worse yet, there are many parents who co-signed for their children’s college education who are struggling to pay not only their own bills but racing against the clock to save enough for their retirement and having to repay their children’s student loans.
As the saying goes “buyer beware.”
Photo credit: http://www.flickr.com/photos/canvy/