The vast majority of consumers in America make important financial decisions basically by-the-seat-of-their-pants. I know people mean well but it is commonly bad advice and accepted assumptions that cause a bright financial future to be scuppered.
Let’s take the issue of student loans for example. Loads of people blindly regurgitate “student loans are good debt” so much so they believe it like it is a perfect fact. It’s not.
The reality is more complex than a black or white, good or bad.
It is an absolute fact that people with college degrees can earn more than those that don’t have the degree.
According to the Minnesota Department of Higher Education, “workers over 25 years old who possessed at least an associate degree in 2012 experienced an unemployment rate lower than the national unemployment rate for workers 25 years of age and over (6.8 percent).”
If we bank our value of college education on this fact then it makes it appear college education is the clear way forward financially.
But let me hit you with another statistic. What if I told you that nearly 75 percent of people who believed that fact and headed off to school and took out student loans never graduated? That’s right, the majority of people who owe students loans have the debt but not the ultimate benefit of the degree.
Now let’s add in another fact; not all loans are created equal. Private student loans are a growing concern. Not only are they not subject to the same considerations and payment flexibility government loans are, but it is increasingly likely a cosigner will be asked for and a loved one or a friend will be on the hook for the loans as well. Guess what happens when you can’t make the payment, they go after them.
Or how about the lack of early consideration of the professional value of the degree when it is eventually obtained. I’ve had plenty of people who have come to me with $175,000 of student loan debt who managed to graduate with an art history or graphic arts degree. Those fields are unlikely going to be able to support those degree fields with that amount of loan debt.
I have nothing against art history or graphic arts fields. They are just examples. The same is true for a wide number of degree programs. Take a bachelors degree in dance, behavioral science, parks & recreation, culinary arts, etc.
At some point smart students need to consider the value of the degree and consider how much debt can be tolerated to incur for that degree. What monthly payment will they be able to handle and yet pursue their field of study after graduating.
And what does the high debt cause people to do? How about abandon their degree. Some drop out of school because they can’t afford to finish their education. Others graduate in fields where entry level income is low, like commercial pilots, only to have to abandon their desire to pursue their field of study so they can just make ends meet.
Credit Karma has recently released new numbers that show the dramatic impact of student loan debt is on another American institution, home ownership. For people born before 1980 (non-millennials) about 30 percent have a mortgage and no student loan debt. For more recent graduates only 8 percent of millennials have student loan debt and a mortgage.
I grant you if you consider all of these facts there is a safe way forward to pursue a college degree and reap the benefit of it. In no way am I suggesting people should just blindly write off getting a degree.
What I am saying is the finances of getting a college degree should not be entered into without contemplative consideration or just based on assumed faith. Do it with your eyes wide open and consider the field of study, how it will be paid for, and if you can start and finish the degree with no or little debt. There are ways to do that.
For those that feel student loan debt is a requirement, then my advice is to only take out federal student loans which can be repaid based on what is affordable, and consider working in fields where your student loans can be forgiven after ten years of income based payments. These fields would fall under the Public Service Loan Forgiveness program. Jobs that qualify for this special benefit are described this way by the Department of Education.
“Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes.
A private not-for-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly. The organization must not be a labor union or a partisan political organization.”
Be smart. Don’t screw up your shot of homeownership or the life you hope to have based on unprotected assumptions about student loans.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.