Kategoriler


Average Student Loan Debt Is At A Record High



During my New York trip, I stopped by Princeton, New Jersey to attend a college friend’s wedding. We were Spanish House housemates who used to flip on CNBC before class and dream of one day making it on Wall Street. This was back in 1998 when working in finance was all the rage.

Although he never made it into finance, he did something better. He became a cardiologist and married an opthalmologist. In terms of finances, their household is set for life. After all those years of training, I wouldn’t expect anything less.



According to the Association of American Medical Colleges, 84% of all 2014 medical students graduate with debt, and the median debt level is $180,000. That is a ton of money to be paying back. Or is it? Let’s look at why the “student loan crisis” the media harps on and on about is overblown. 

STUDENT DEBT IS ALL RELATIVE

Let’s say my friend the cardiologist graduated with $180,000 in student loans. Is that really so bad if the median salary for a non-invasive cardiologist is $250,000, and $400,000 for an invasive cardiologist? I don’t think so, especially given the high certainty for lifetime employment for doctors. There just aren’t enough.

After a 30% effective tax rate, $250K and $400K equals roughly $175K and $280K. Breaking the numbers down even further, $175K is about $14,583 a month, while $280K is about $23,333 a month in income. Let’s say my friend goes through an aggressive 10 year student loan repayment plan at a conservatively high 5% interest rate, his monthly payments would be $1,909.18 or just 8-13% of his after tax salary.

If he were to refinance his student loan with Credible, I’m sure he could get lower than 5% because he went to William & Mary, Columbia for his Master’s in Public Health, Yale for Medical School, and Cornell for his residency! Fintech firms are addressing the vastly underserved demographic of recent graduates with a tremendous amount of earnings potential, but not a lot of money just yet.



OK, I understand not everybody has the intelligence or grit to become medical doctors. I certainly don’t. I just used the highest student loan debt figures cited by the media and match it with a common example to show how affordable student loan debt may actually be.

AVERAGE STUDENT LOAN DEBT

Now let’s talk about people who go to college and don’t go on to get a graduate degree. The following chart shows the average student loan debt per borrower. We’re at record highs at ~$35,000 for the latest class of college graduates.

Average college debt per borrower per year



Although graduating with $35,000 in student debt sounds like a lot, to gain some perspective, let’s compare this debt to median income.

According to the Labor Department, the median weekly salary for those with at least a bachelor’s degree is around $1,193. Let’s say the median person works 49 weeks a year. That’s an annual salary of $58,457. To be more conservative, let’s round down the figure to $55,000.

If we plug $35,000 of median debt into a student loan repayment calculator using a 10-year payoff term and a 5% interest rate, we get a monthly principal and interest payment of $371.23. Let’s continue to stay conservative and use a 30% effective tax rate on a $55,000 income. We get $38,500 a year net, and $3,208 net a month.

A $371.23 monthly student loan payment is only 11.5% of a graduate’s monthly net income. With over $2,800 a month to live life and save for retirement, unless the person is completely fiscally irresponsible, is his/her student debt really so burdensome?  I don’t think so.



How much student loan debt do you have?

View Results

Loading ... Loading …

BUT WHAT ABOUT PRIVATE SCHOOL TUITION?

While I was at Princeton, I spoke to some Princeton students and Princeton employees at the admissions office about the cost to attend. Here is the official breakdown of Princeton’s tuition and expenses for 2015-2016:

Tuition and Fees: $43,450
Room and Board: $14,160
Books and Supplies: $1,050
Other Expenses: $3,190
Total Cost: $61,850 a year

Damn, Gina! That’s a ridiculous amount of money for college. $61,850 means one has to spend 100% of a $90,000 gross income after tax. With the median household income around $52,000, who can afford that?



RICH PEOPLE!

Private schools have a disproportionate amount of higher income earning households than state schools. That’s common sense. I have literally talked to thousands of private school students and now parents during my time working in finance and through this website.

But let’s not assume private schools only consist of kids whose parents make six figures or more. If your child is smart enough to get in, but comes from a middle class-to-lower income household, then attending college might be free or at least highly subsidized!

Check out the subsidies given by the following 10 private schools assembled by Bloomberg.

1. Princeton

Tuition for 2015-16: $43,450
Acceptance rate for the Class of 2021: 6.99 percent
Policy: Families making less than $54,000 a year don’t pay tuition, room, or board, and families making less than $120,000 a year don’t pay tuition.



2. Brown

Tuition for 2015-16: $48,272
Acceptance rate for the Class of 2021: 8.5 percent
Policy: Families making less than $60,000 don’t pay tuition, room, or board.

3. Cornell

Tuition for 2015-16: $48,880
Acceptance rate for the Class of 2021: 14.9 percent
Policy: Families making less than $60,000 don’t pay tuition, room, or board.

4. Columbia

Tuition for 2014-15: $51,108
Acceptance rate for the Class of 2021: 6.1 percent
Policy: Families making less than $60,000 don’t pay tuition, room, or board.



5. Duke

Tuition for 2015-16: $47,650
Acceptance rate for the Class of 2021: 11.3 percent
Policy: Families making less than $60,000 don’t pay tuition, room, or board.

6. Harvard

Tuition for 2015-16: $45,278
Acceptance rate for the Class of 2021: 5.3 percent
Policy: Families making less than $65,000 a year don’t pay tuition, room, or board.

7. Yale

Tuition for 2015-16: $47,600
Acceptance rate for the Class of 2021: 6.5 percent
Policy: Families making less than $65,000 a year don’t pay tuition, room, or board.



8. Stanford

Tuition for 2015-16: $45,729
Acceptance rate for the Class of 2021: 5.05 percent
Policy: Families making less than $65,000 a year don’t pay tuition, room, or board, and families making between $65,000 and $125,000 a year don’t pay tuition.

9. MIT

Tuition for 2015-16: $46,704 (includes mandatory fees)
Acceptance rate for the Class of 2021: 8 percent
Policy: Families making less than $75,000 a year don’t pay tuition.

10. Dartmouth

Tuition for 2015-16: $48,120
Acceptance rate for the Class of 2021: 10.3 percent
Policy: Families making less than $100,000 don’t pay tuition.

As you can see from the data, a lot of middle class to lower income students don’t pay the rack rate and that’s a GOOD thing. Those students who make above the policy cutoffs will get prorated assistance as well.



There’s this big uproar against soaring private school tuition costs. People feel it’s unfair that only the rich can afford to send their kids to elite private schools. Here’s a post that shares how much certain rich folks would be willing to pay extra to get their kids in. We already know that rich people have advantages over the rest of us. And coming from a public school like William & Mary, I couldn’t help but feel the same way as most.

But after speaking to people at Princeton and highlighting the subsidies in this post, we should actually want listed tuition prices to rise as high as possible! With high tuition prices, colleges have more flexibility to smartly charge their richest students the highest prices to help subsidize those students with lower household incomes. Ah-ha! A silver lining.

STUDENT LOANS ARE MANAGEABLE

Student Debt Crisis

So far I’ve demonstrated that student debt can be manageable for those who’ve taken out the most debt (doctors). I’ve also shown that student debt should be manageable for the median person who graduates from college. I’ve even shown that the rack rate for private school tuition is not necessarily the amount a student actually pays. We haven’t even touched upon how many people can save a ton of money going to a public school like I did or attend community college for two years and then transfer to a public school for even more savings.

The cost to attend college is directly proportional to a student’s ability to pay. That a person is able to take on $100,000 in credit card debt is due to the fact that that person has a high enough income to afford it. No credit card company just gives that much credit to anybody just like how nobody pays $60,000 a year for college if they can’t afford it.

Rational people research the graduation rates, job placement rates, the median salaries of graduates, the school’s rankings in the various polls, internship opportunities, the most popular employers, and so forth because college is expensive and takes years to complete. The same goes for how plenty of rational investors who want to maximize returns develop a system to allocate capital.

ONLY THE FEW LOSE

Acceptance rates at Goldman Sachs, Harvard, Yale, and Princeton



Getting any job is like winning the lottery

Although every student hopes the perfect job is waiting upon graduation, few students are so delusional as to think employment is guaranteed. Few people would not run a cost/benefit analysis of college or graduate school before spending years of their lives and tens of thousands of dollars. There is no sure thing except for how hard one can work.

Even with the national unemployment rate at ~5%, and the unemployment rate for college graduates at ~2.7%, there will always be students who graduate with debt, and because they haven’t found a job or the ideal job, some will have difficulty meeting their loan repayment obligations. Many might even have to move back in with mom and dad, the wealthiest generation in the history of the world.

However, if college graduates want to work, it’s not like they’ll stay unemployed forever. While searching for an opportunity, there are plenty of low wage jobs to take. You can also apply to work for the state, federal, local or tribal governments, nonprofit organizations with a 501(c)(3) tax-exempt status, AmeriCorps or the Peace Corps to take advantage of the Public Service Loan Forgiveness program as well.  Nobody is too proud to work.

So for all those people who think the $1.3T student loan bubble is the next to burst, relax. We’ve got fintech lending companies making student loan repayment much more manageable since big banks are too inflexible to change. The rack rate tuition highlighted by colleges is only paid by those families who can afford to pay. And the sharing economy has created a plethora of freelance opportunities to help people make ends meet. Where’s the crisis folks?

Summary For Student Debt Sufferers

1) Refinance your debt. Check out Credible, a student loan marketplace that has qualified lenders competing for your business. Credible provides real rates for you to compare so you can lower your interest rate and save. Getting a quote is easy and free. Take advantage of our low interest rate environment today!

2) Side hustle. Do not be too proud to take on a minimum wage job, or non ideal job while you search for your ideal job. Getting your ideal job is like winning the lottery. Often times, it takes a lot of paying your dues and a couple job hops before you get there. There’s a massive sharing economy that lets you contract your services at $10 – $30/hour. Do that 40 hours extra a month, and you’ve got an extra $400 – $1,200 right there.

3) Cut expenses to the max. News flash. You are poor! Do not be too proud to live at home with your parents, share an apartment, share a room, take the bus, ride a bike, walk, and wear old clothes. If you are poor, don’t act rich. Act poor! The biggest problem is folks expecting to get rich immediately.

4) Do not drop out. The worst thing you can do is go to college, incur a ton of student debt, and then drop out without getting your degree. If you are unsure of college, go to Community College for a year or two and test the waters. CC is an inexpensive option that allows you to transfer credits over to a four year school if you so choose.

Loading ... Loading …

Wealth Planning Recommendation

College tuition is now prohibitively expensive if your child doesn’t get any grants or scholarships. Therefore, it’s important to save and plan for your child’s future. Check out Personal Capital’s new Planning feature, a free financial tool that allows you to run various financial scenarios to make sure your retirement and child’s college savings is on track. They use your real income and expenses to help ensure the scenarios are as realistic as possible.

Personal Capital College Planning Feature

Once you’re done inputting your planned saving and timeline, Personal Capital with run thousands of algorithms to suggest what’s the best financial path for you. You can then compare two financial scenarios (old one vs. new one) to get a clearer picture. Just link up your accounts.

There’s no rewind button in life. Therefore, it’s best to plan for your financial future as meticulously as possible and end up with a little too much, than too little! I’ve been using their free tools since 2012 to analyze my investments and I’ve seen my net worth skyrocket since.

Personal Capital Retirement Planning Comparison Chart

Refinance your student loans today. Check out Credible, a student loan marketplace that has qualified lenders competing for your business. Credible provides real rates for you to compare so you can lower your interest rate and save. Getting a quote is easy and free. Take advantage of our low interest rate environment today!

Updated for 2021 and beyond.

Click here for Source



  • Site Yorum

Bir yorum bırak