I've always taken my college education for granted because my parents saved and paid for it ... that is, until I had a college-age daughter myself. In reading over the transcripts of President Barack Obama's speech about student loan debt to students at the University of Colorado, Boulder, on April 24, I was struck by the Obamas' personal experience with their own student loans from college and law school. He said:
We paid more for our student loans than we paid for our mortgage each month when we first bought our small condo in Chicago. And we were lucky to land good jobs with a steady income, but we only finished paying off our student loans about eight years ago. Think about that. I'm the President of the United States and -- (laughter and applause) -- so here I am, and we were writing those checks every month.
The Obamas' loans were definitely worth it.
Obama also told students that the average student loan debt for undergraduates is $25,000. Imagine trying to start your life with debt like that on your back, assuming you could even get a good job. But when coupled with the recent statistic from the Consumer Financial Protection Bureau that student loan debt now surpasses consumer credit card debt, many parents and financial experts alike think its better to avoid student loan debt as much as possible.
"Before you incur student loan debt, calculate how you will repay it especially if you are majoring in a field that doesn't pay very well," says Mark Kantrowitz, publisher of FastWeb.com and FinAid.org. Kantrowitz explained, "Compare the loan amount with your expected realistic total annual starting salary and that's what you can likely repay in about 10 years – if the loan amount exceeds that, you will likely be in debt for 20 or more years." Kantrowitz warns that students older than 50 should be even more cautious, because they'd be working to repay those loans well into retirement.
I heard a desperate man on Suzie Orman's "America's Money Class" asking Orman if he should go bankrupt to get out from under his $100,000 student loan debt (75 percent taken recently for a graduate degree when he found himself unemployed.) Orman's biggest truth in reply: "Know that student loans of any kind cannot be discharged in a bankruptcy."
Kantrowitz agrees and cautions, "The federal government is very compelling at achieving repayment of its loans and has the means to collect money, even from your Social Security checks after retirement."
Does your loan fit the 10-year repayment formula? Was the price you paid (or are still paying) worth the job you got?