“How much student debt is too much?” Video Script
Americans currently owe about 1.5 trillion dollars in student debt. But, how much is $1.5 Trillion dollars? Trillion with 12 zeros. If you stacked $100 bills, your stack would pass the international space station and keep going an additional 700 miles. That stack would be almost 950 miles tall.
And this number only continues to increase. In fact, it went up about 79 billion dollars in one year alone: 2018. That means that in a single minute, student debt in the US increases by $150,000. So by the end of this video, national US student debt will increase by over ½ million dollars.
That’s over $4,500 per person in the US, including you, me and your grandma!
As a high schooler myself, I know we have been taught grammar equations and that the mitochondria is the powerhouse of the cell. But we haven’t been taught how to navigate the financial decisions we make in college. In fact, many of us have been lied to about the real cost of college and how much you can reasonably pay off. It’s not all your parents fault, though. Most of our parents went to college in the 90s. That’s about 30 years ago. And a lot has changed in 30 years. At a State University like Sac State University, 30 years ago, you could work a part time minimum wage job, 20 hours a week, and pay off 108% of your college tuition, room and board. Now, you could work that same job, and pay all of it toward college and be left with $30,000 to pay off. Diploma in hand, that would take you an extra 8 years to pay off with your starting salary of your new career. Needless to say, parents don’t exactly have up to date information to give you on your journey to financially support yourself in college.
Want to know the scary bit?
7 out of 10 students leave college with student debt, some with degrees to show for it and some without. Graduating students with a bachelor’s degree left with an average debt of 37 thousand dollars. That’s enough to pay for your dream wedding, a down payment on a new house or a Tesla Model 3.
But what about students who leave college early, without a degree?
In the 2015-2016 school year, as many as 4 million students dropped out of college or didn’t finish their degrees. Many think that just because they didn’t earn the degree that they don’t have to pay back their student loans, but they do. And students in this predicament owe on average more than 10 thousand dollars in debt. But the difference is that these students don’t get a salary that reflects the classes they took debt for.
In past years, we have seen an increase in concern for student debt. Many debt carrying students choose to delay getting married, buying a home, or even having kids. Many students also choose to move back in with their parents to save money to pay student loans.
Not all student debt can be avoided, though. We need doctors, lawyers, teachers, engineers, scientists, writers, computer programmers, historians, innovators, and so much more. Many times, you need a college degree to pursue those paths, and you might need to take debt to make it happen, but there are always ways to minimize the financial risk you take to get your degree. I recommend that you take 50% of your first year’s salary in student loans for you to be able to reasonably pay it off. I’ll explain more about this later if you keep watching. Just remember 50%.
An important question to ask yourself is if college is even the right decision for you. College can open the doors to higher income potential and specialty career paths. As we discussed earlier, debt can follow you even if you don’t earn a degree, so it may be a worse decision to take on debt for a degree you were never intent on finishing.
Talking to your parents or school counselor can help in making the right decision for you, even if that decision isn’t to go to college.
However, for those who decide to pursue a college path, a good first step to making an educated decision, is exploring the grad rates at your desired college. Mobile search engines, like Google, have made this really easy to find, simply search your college and look for outcomes. Grad rates are an important predictor of the school’s ability to support you in completing your degree. Avoiding schools with low grad rates can help you be successful in the long run.
The next step you can take is to apply to many schools, because you never know what opportunities you would get unless you applied. The one or two schools you want to go to may not be a reasonable option for you, so applying to many schools would eliminate the stress of not having any more options.
When all is said and done, your school counselor can be your best friend in finding support options for your college life. They have an educated view on the available scholarships and grants that you qualify for. School counselors can also help you with understanding and timely filing FAFSA.
You can also financially support yourself through replacing the first 2 years of a 4 year university with low cost community college to lighten the load.
You are probably wondering, “what about part time jobs?” Jobs in college have both pros and cons. While, of course, the money would help you pay off loans or debt, it would also take time away from your classes. Working too many hours can be harmful to your academics. Having a C or lower average is more common for students who work more than 15 hours, while students who work less than 15 hours have Bs or higher on average. For students who need jobs to support themselves financially, or want jobs for other reasons, this means that choosing to work 15 hours a week or less is a healthy option. While those who choose to work longer hours sacrifice their grades and time commitment to their classes.
In the end, loans are not always avoidable, but they may be the most beneficial way to access higher income in the future. But minimizing the amount of debt that you take will leave a positive impact on the rest of your life. According to financial planners, and my own research, there is a safe amount of student loans that you can take based on your expected future first year salary. Remember the 50% number we mentioned earlier, here is it again. And we especially recommend prioritizing subsidized loans over unsubsidized loans.
So how do you find your future first year salary? Well, the Bureau of Labor Statistics, or bls.gov has made this information accessible. For now, let’s look at being a Civil Engineer in California earning about $60k per year, which is the data I pulled from the Bureau of Labor Statistics wage estimator.
Taking 50% of this first year salary would be $30,000 in loans. Most student loans are paid back over a 10 or 15 year time period, and monthly payments remain the same over those years. In my example, I would be paying back $340 per month, each month for 10 years. As you can see, even by paying $340 per month, I would end up paying almost $11,000 in interest.
Listen, there are always going to be the Bernie Sanders and Elizabeth Warrens of the world trying to make college more affordable or eliminate student debt altogether. There are always going to be parents and grandparents who will tell you about successfully working their way through college without debt. But that is probably not going to be you. You should educate yourself on the options available to pay for college and know that when you sign for college loans, you are the one burdened to pay back the debt. Bernie probably won’t be helping you there. And your grandparents may not either. It is your life on the line. So, be resourceful, be informed, and remember 50%.