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The Psychological Effects of Loan Debt

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Replies to: The Psychological Effects of Loan Debt

  • twoinanddonetwoinanddone Registered User Posts: 20,633 Senior Member
    I have a max number in my head of loans (~60K over 4 years) which I will allow her to take on.

    She can't take on $60k in loans from one source. She can get about $30k in direct loans (with interest accruing while in school). That will be one payment. Use the repayment calculators to get what the monthly payment on that will be. I think the current interest rate is 4.5% but it changes every year on July 1. Repaying $30k @ 5% over 10 years is about $300/mo.

    The rest, if you want them to be in her name, will be private loans with you co-signing. The direct loans and the private loans cannot be combined, so she'll have a second payment every month. It is likely her rate would be a little higher, but figure another $300 per month for 10 years.

    i suggest you not do the calculating in your head but write it down and show your daughter. I assume your daughter has never paid rent, utilities, bought groceries, made car payments, paid insurance, paid for an unexpected medical bill out of her own budget. It takes a lot of money just to live, and add a $600 student loan payment? Ouch.
  • HankCTHankCT Registered User Posts: 173 Junior Member
    @twoinanddone Yeah, I hear you. Familiar with the direct and the co-sign split. It is what it is. The country/government is broken, and this is where we are right now in 2019. Perhaps in 10 years the country will wake up and fix this issue, but until then, you have three choices:

    1. Be in the wealthy top 2%, and college cost is a non issue
    2. Go to a good college to give yourself a chance for a good career trajectory, and borrow
    3. Go to a weak/cheap school, and hamstring your chances at success

    Obviously there are exceptions to all the rules, but this is the bulk of it.

    If you plan to be an actor, an entrepreneur for example, these rules don't apply. But there are many careers where your choice of college and pedigree will be a large driver in your future success, at least in the first quarter/half of your career.

    If things go as expected for us, we can probably pay the secondary co-signed loan ourselves, or even help when its needed. If she gets into local state flagship, we can probably reduce that loan amount quite a bit - rooting for that.
  • HankCTHankCT Registered User Posts: 173 Junior Member
    And you are right, like almost all 17 year old kids, she has no real concept of bills or money. She's only made a few bucks at an hourly wage and has no insurance or bills to really pay, outside of her own spending (clothes, games, etc). There should be a full one year HS course in Finances for all US students, complete with honors options. She did have a class where they made her do all the research of a budget, from car payment and insurance to apartment rental, based on a salary. A good exercise, but should be an in depth course for a year. The country would benefit tremendously ... probably at the expense of the predatory college loan/credit card/car loan industry.
  • itsgettingreal17itsgettingreal17 Registered User Posts: 3,598 Senior Member
    There’s no way I would have let my D take on $60k in debt. That’s just too risky. I’m a firm believer that the school doesn’t make the kid. My D knew early on that we’d be merit chasing and she never got that dream school or prestige obsession in her head. As a sophomore, she’s already reaping the benefit of her wise college choice. She’ll not only graduate with no debt, but she’ll also have banked a nice chunk of money just from her scholarship and internships. It is freeing.
  • ucbalumnusucbalumnus Registered User Posts: 74,612 Senior Member
    edited February 22
    HankCT wrote:
    If she is going into medicine, law, advanced technology, advanced politics, and so forth, where college pedigree is a MASSIVE factor in terms of job options post graduation, and they tend to more than pay for the debt, more money can justifiably be borrowed.

    For medicine, all US medical schools (except perhaps some for-profit ones) are effectively elite; while ranking may matter, it does not matter that much. And medical school admissions are not particularly sensitive to undergraduate school ranking (for four year schools; some of them look down on taking courses at community colleges). Most of those admitted to medical school get only one admission, so they have no choice with respect to ranking or (typically very high) cost and debt.

    Law employment is very law school ranking sensitive (see https://www.lstreports.com/national/ ), but law school admissions is mostly based on LSAT and undergraduate GPA, rather than undergraduate school ranking (see http://schools.lawschoolnumbers.com/ ). Law school is also typically high cost and debt.

    In terms of "advanced technology", engineering employment is less school ranking sensitive than many other areas; computing can vary by employer. What ranking sensitivity there is tends to be based on in-major ranking, and is moderated by other factors (e.g. local/regional school preference).

    But the areas of employment that are generally seen as most school ranking sensitive are ones that you did not name, such as management consulting and investment banking, though these are less strongly associated with particular majors.
  • ucbalumnusucbalumnus Registered User Posts: 74,612 Senior Member
    HankCT wrote:
    There should be a full one year HS course in Finances for all US students, complete with honors options. She did have a class where they made her do all the research of a budget, from car payment and insurance to apartment rental, based on a salary. A good exercise, but should be an in depth course for a year.

    Probably not a good use of time for some students who know or can quickly learn that on their own, so a test-out option should be offered. Also, the prerequisite for such a course probably needs to be a match course where one learns exponential functions, since that helps understanding stuff like compound interest.
  • HankCTHankCT Registered User Posts: 173 Junior Member
    edited February 22
    @ucbalumnus
    Probably not a good use of time for some students who know or can quickly learn that on their own, so a test-out option should be offered. Also, the prerequisite for such a course probably needs to be a match course where one learns exponential functions, since that helps understanding stuff like compound interest.

    For "some" students, perhaps, most all of them would benefit from this. I think if you feel that this wouldn't be an insanely valuable class, then you aren't living in typical America, where 95% of the kids (and adults) don't understand finance, debt, retirement, compounding interest/returns, credit scores, and so forth.

    I would rank this class as more important than ANYTHING currently offered in High School. Stuff like Calculus or Biology or Poetry can be learned later, and would be severely less important in most people's lives than understanding finances.
  • ucbalumnusucbalumnus Registered User Posts: 74,612 Senior Member
    Why do you think it would take a whole year to cover that material, as opposed to exercises your daughter did in some other class as you mentioned in reply #18? Seems like a stretch to even fill up a semester with that, at least at the high school level (as opposed to finance courses in college that require various college math, statistics, and/or economics prerequisites).
  • HankCTHankCT Registered User Posts: 173 Junior Member
    edited February 22
    @ucbalumnus I guess we could just agree to disagree. In my eyes, one of the biggest issues in this country is the large majority of the country entirely failing to understand finances. Predatory lending is off the charts, and people usually find out how the system works after they have already been screwed. Worse still, hardly anyone is saving for retirement - and while some of that is due to low income, most of it is due to lack of understanding the basics.

    Perhaps people who grew up in financially savvy families who taught this information don't see the big deal here. Most, however, have parents like mine - who didn't understand that stuff.
  • ucbalumnusucbalumnus Registered User Posts: 74,612 Senior Member
    HankCT wrote:
    I guess we could just agree to disagree.

    It looks like you are trying to find more disagreement than there exists. I do not actually disagree that personal finance would be a useful topic to cover in high school. The only disagreement is that I do not believe that it should take a year long high school course to cover that material, and that some students may learn it on their own enough that there should be a test-out option.

    But also note that it should have a math prerequisite of algebra 2 or whatever math course covers exponential functions.
  • PurpleTitanPurpleTitan Registered User Posts: 11,969 Senior Member
    "I am of the opinion that HS students are on the whole poor judges of the affect of indebtedness."

    Also, evolution has not wired teenage brains to value delayed gratification. In fact, evolution has wired teenage brains to have a steep discount rate of the future.

    I'm also of the opinion that finance (personal and more) should be a required class for a year for everyone.
  • GudmomGudmom Registered User Posts: 188 Junior Member
    personal finance IS a required one-semester course in NJ...and making Algenra II a prerequisite is non-sensical. The kid who plans on being a hairdresser or HVAC tech and enrolls in the schools voc-tech program also needs a course in personal finance. Algebra, and nothing else, is required for graduation, and some kids don’t go farther in math than they have to. They can still understand the concepts. When my son was 4, we realized that he could do “football math”. That is, if you asked him “what is 14 and 7? he would panic and start guessing- 17? 23? But if you said “The Jets have 14 points and then they score again. What is the score now? A calm would come over him and he would say, “Well, a touchdown would give them 20, and 21 with the extra point. Or they could go for a two point conversion and have 22. But if they only kicked a field goal, it would be 17”
    Financial Math works something like that. Algebra II is too abstract for some kids to care about, but put it in terms of dollars and cents and they get it.
  • ucbalumnusucbalumnus Registered User Posts: 74,612 Senior Member
    Gudmom wrote:
    personal finance IS a required one-semester course in NJ...and making Algenra II a prerequisite is non-sensical.

    How do they explain compound interest without even the most basic knowledge of exponential functions? Or do they teach exponential functions in that course?
  • MmeZeeZeeMmeZeeZee Registered User Posts: 580 Member
    @HankCT

    Do you really believe this: "Go to a weak/cheap school, and hamstring your chances at success"?

    Maybe you're talking about really bad schools, but there are many affordable schools which are not weak.

    If attending a state school for engineering is going to hamstring someone, I don't think it's the credentials that are the problem.

    Some examples in technology, for undergraduate degrees:

    Nadella: University of Wisconsin
    Sundarajan: IIT (regional, I don't know the city but it was not Mumbai or Delhi)
    Brian Stevens, CTO of Google: University of New Hampshire
    Shane Wall, CTO of HP, Oregon State
    Steve Chen, CTO of YouTube, University of Illinois
    Gerri Martin-Flickinger, current CTO @ Starbucks, former CIO of McAfee, Washington State University
    Safra Catz, U Penn
    Tim Cook, Auburn

    And my personal favorite, Michael Mayberry, CTO of Intel... Midland College. A technical college. (I double checked that this was not a mistake and no, they're not referring to Midland University.)

    The list goes on.

    Sure, there's lots of success in the upper tiers too, but I think tech values talent and hard work and you don't need an expensive degree to prove that.

    On the contrary, the ability to be flexible, to dedicate yourself to an internship, to live nearer to work because you aren't saddled with debt seems to me to be a better choice for many people.
  • HankCTHankCT Registered User Posts: 173 Junior Member
    @MmeZeeZee Not sure we disagree in any way. My reference to weak state schools was schools like Southern CT State University. You can still do just fine there, but there is certainly a larger hurdle.

    Most of the schools you listed above are between good and elite. Wisconsin and Illinois are elite schools. Auburn is excellent. UNH and Oregon state are good schools, A- rating on Niche. Washington State is also very good. You listed U Penn as a decent state school? It's a top 10 college in the country (and an Ivy).

    I would be charmed if my children went to ANY of these great schools. In fact, my daughter applied to almost exclusively state schools like these. Uconn, Umass, UDel, Penn State, Binghamton U, Buffalo were applied to.

    The Michael Mayberry one is a legit sub-par school, ranked very low. 100% acceptance rate. Having said that, he seems to have gone from Mayberry on to get a PhD in chemistry from UC Berkely. Something is off there, there is more to that story. Having said that, that was 50 years ago, and the world of college couldn't be any more different today than it was 50 years ago.



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