Are students taking on too much debt?

Parents Forum
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I agree that this is the fundamental nature of the issue with parents who have discretionary choices to make (meaning those who do not need every penny for basic necessities). And it is in fact tricky gaming that all out many years in advance, and the best-laid plans can be derailed by things like unexpected health events, layoffs, and so on.

That said, I do think some parents have not fully grasped the nature of some choices. Like, notoriously, professional salaries tend not to scale up proportionately to costs of living, particularly housing costs, in very high cost of living coastal metros. This can mean less savings in general, unless perhaps you are willing to accept a considerably lower standard of living than your professional peers in less expensive “flyover” metros. And to the extent you do have savings, a lot more of them may end up in the form of net home equity rather than liquid financial assets, including 529s.

OK, so choosing to make your life in an expensive metro is basically a cost for most professionals, and paying that cost can mean less financial resources for other things, including college.

All of which makes sense, like if you want nice things they usually cost you more. And I do not think people who choose to pay more to live in a very popular location are necessarily making the wrong choice.

But there are a lot of people who basically believe this particular decision should not be costly. Like, they seem to believe that choosing to live in these metros should by right make them wealthier in general, and they should therefore be able to live in just as big a house, drive just as nice of car, take just as nice of a vacation, pay for the nicest high schools, pay for the nicest colleges, and yet be in a far more popular location too.

Of course that doesn’t mean there are no professionals in less expensive metros who have chosen to spend everything on other luxuries and ended up short for college costs. But I do think you can have what looks like a very nice lifestyle AND save a lot more specifically for college much more easily on two or even one really good professional salary.

OK, so when you have de facto made the choice to prioritize living it up in an expensive metro over saving for college, but you don’t feel like you should have had to face such a choice, you may indeed become very vocal about how unfair it is that a college may now actually expect you to, say, access some of that home equity to pay for college. But that is what it is, and usually such families can still make it work at their in-state options. But then they might not be able to get admitted to the BEST of their in-state options, which is another possible consequence of their locational decision . . . .

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Well after today I’ll have 4 college graduates, after next weekend add a graduate student, last one graduates next year (commuter). Fortunately the first 2 chose in state schools, took loans, which thanks to good salaries and a COVID shut down, are paid. The 3rd will have a boatload, no cheap way to get a DPT (received a lot if merit at a safety, but has been bartending for years at night (1 out of 3 in her cohort with a job). She made it through undergrad in 3 years with 30 AP credits. Fortunately it pays very well in our area. My graduate today chose a field which pays well, starts in July (actuary). She, like the others, only applied to safeties/targets, chasing merit, top of her high school class. She is graduating with 160 credits in 4 years, she just loved her classes. Last one will have fewer loans as a commuter, tuition was only $15,000 a year. Loans aren’t great, but I don’t think they would be landed where they did without them.

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I think there are differences between loans and loans. Looking at the link that @ucbalumnus shared above, if one clicks on a state one could see how much debt was being taken out at different colleges (and also amounts of private debt). There were students graduating from non-flagship public colleges with definite debt (say $25-30k). Then there were those who were graduating from schools that get more mentions on CC that had higher levels of debt. My sense is that the students with $25k in loans from their regional publics are students where they have essentially had to fund their education themselves, with assistance from family probably coming by way of being allowed to live at home. These are the types of situations where I think that loans make tremendous sense and have great ROI (assuming, of course, the student graduates from college). So for students in situations like these, I do not think they are taking out too much in loans.

But for the students who are going to schools more popular on CC
with significantly higher levels of debt
those are the ones where I’d argue that they are taking on too much debt. It feels like people are taking on the debt to get a Chanel or Hermes bag when they could have had a Fossil or Coach or some other bag that doesn’t have a famous name but that would have worked perfectly well.

Perhaps it might help think about this situation in terms of retirement. Many people who live in HCOL areas may have less in designated retirement accounts, but plan to move to a LCOL area upon retirement and to use that home equity to help fund their retirement. So if using home equity towards retirement makes sense, then perhaps it might help parents realize why some colleges expect families to pull from that home equity to pay towards college.

As an example, my sister lives in a popular west coast metro. They bought their house 2-3 years before we bought ours. Their house has increased in value by at least $1.2M in the intervening years. Ours
has not. It’s essentially kept up with inflation (acknowledging that inflation for most of those years has been quite minimal). So both of us have been paying our mortgages, but because of her location, she’s got an extra $1.2M in equity to tap that we would need to try and save from our incomes to have the equivalent for college and retirement (assuming, of course, we even had the kind of incomes that could save that amount of money).

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44

Do any of these tools break out loans by college year? I don’t think you can state “too much” or “OK” on loans without knowing more.

I know a lot of families back in 2009/2010 who got caught short. Kid had been taking out modest loans (so maybe 2k) just so they’d have “skin in the game” (I hate that term, but you know what I mean.) Then the financial crisis- one or both parents unemployed. If you lived in an area where the crisis hit hard your home value plunged virtually overnight. And your retirement probably took a hit as well.

I’m not making this up- I’m thinking of neighbors of ours- she worked at Bear Stearns, he worked at Lehman, it was the perfect storm that nobody ever thinks is going to happen to them (two unemployed professionals, home equity plunge, the portion of the retirement accounts tied up in company stock circling the drain).

So do you help your kid by taking out enough loans so they can finish their senior year (even if it’s at a college where you think the loans are “too much”) or does your kid leave without a degree, or transfer to the local commutable college where they’ll look at the transcript of a rising senior and say “You need two years to get a degree”.

No. You take out enough in loans to finance your kid’s last year. Kid takes the maximum federal, you take whatever you can get. And if you’ve got two in college at the same time, you start to pray. Maybe you get something small from financial aid- but probably not since they are looking at prior when you still had a good job.

And then you hold your breath. It’s no joke that the Fed analyzed the data on the kids who graduated into the years of the financial crisis and found that it took- on average- a decade for those kids to get to where their cohort (even kids graduation two years earlier) were in terms of income, savings, credit scores, etc.

So I’m not prepared to judge who is taking out too much because it depends on the circumstances. But I WILL judge that loans for a for-profit school are almost always a bad idea; risking your home equity for a HELOC is frequently a bad idea; graduating into a recession (as I did, and many of us did) is no fun if you’ve got the pressure of those loan payments coming due.

One generational shift though- I don’t know a single person in my college class who would have turned down a good, professional type job with benefits due to location or because “it’s not consistent with my values”. I’m not talking about refusing to work for a company that makes chemical weapons and sells them to the Syrian government. I’m talking about kids (now) refusing to work for Exxon or BP (and I want to ask them-“have you ever ridden in a car?”). Kids refusing to work for a consumer products company that uses palm oil in their cookies. And geographically- not every kid can end up in Austin, Seattle, Boston or another “cool city”.

My college friends dispersed after graduation. Minneapolis, Philadelphia, Wichita, Dayton, Milwaukee, Springfield (Illinois), St. Louis. You got an offer during a recession? You took it. On the form that asked “location preference” you put “wherever they need me” and if that meant two years in Akron- you figured out how to love Akron.

I’m not seeing that right now. I’m seeing parents willing to finance their unemployed college grad for as long as it takes to find the dream job.

My parents would have howled with laughter if I’d told them I’d turned down a job due to location!!!

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But the flip side of that is that need-based financial aid doesn’t take into account the cost of living, just income. And now as aid has become more generous at top colleges, we’ve got to quite severe cliff edges at relatively high salaries. A job paying $150K in the Midwest may translate to $250K in the Bay Area, just to partially cover the extra cost of living there (and wouldn’t even allow you to rent or buy a comparable house). But you might end up with tens of thousands of dollars less in financial aid each year from the most generous colleges.

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46

Yeah, the mobility of young, family-free college graduates has long been a significant contributor to the average returns to college. So taking that option off the table, or severely reducing it, is probably not helping such families.

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Another thing I see is that some areas are cheap because they don’t have a lot of jobs or they have a lot of low wage jobs (nothing wrong with that).

I’ve seen that too! I know a grad who didn’t want to work at a place that was a 15-20 mins drive. I get that commutes can be hard, but this was actually a very easy 15-20 min commute and it was a good job. And in our area lots of people drive much further to work and they drive with the traffic. This girl’s commute would have been going against the traffic

But yes, I have seen some parents who will finance their college grads until the dream job comes along and they also complain about how much this is costing them. That was not something we were willing to do for our kids..at least not very long, especially since our money isn’t infinite.

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48

Are students taking on too much debt? Generally speaking, yes.

Are some students sometimes too picky about the type of job they want or where they’re willing to relocate to after graduation? Yes.

DH & I have already been talking to D24 and D26 about it
don’t be too picky about where you’re willing to live post-graduation. Sure, right now you both want to live in your home state. But hey D26, if you get a cybersecurity job offer in, for example, Fort Eisenhower, GA (near Augusta), then you should take it and bonus is you’re only a 6 1/2 hr drive from WDW? Hey, we’ll come to visit often. Work your butt off for a couple of years, get some experience and more training under your belt, and then get a job in another area that you feel is more desirable.

Or D24
wants to be a PA. Is attending an LAC. Will she likely go straight to grad school after college? The odds say probably not. Hey, D24
you could then attend a 12 month ABSN program, get your nursing license, work a couple of years as a nurse, pay off all of your student loans & save up some $$ for PA school. OR work a low paying job for 1-2 yr as an EMT, MA, or CNA during that time frame and earn less than half what you’d earn as a nurse.

What I think is unwise? Student & parents decide that the name brand is worth it enough that student+parents take on something along the lines of $60k/yr for 4 yr in a row of student+parent plus loans, with the agreement that student pays the Parent Plus loans after graduation. Hence, kid ends up owing $240,000 at graduation. And student got a degree in theater or international relations or something ending in “studies,” and is earning maybe $50k/yr salary. So student has basically a mortgage payment each month in student loans and doesn’t have enough income to be able to easily make ends meet.

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Guess what? Some of those “studies” majors are much more rigorous and employable than the “you can’t miss” degrees. Bio major? Marketing major (without a rigorous statistics and programming track?) Sports Management?

An Asian studies major fluent in Mandarin or Korean? I’ll bet on that kid. Any language on the State Department list of strategic languages plus area studies is a solid and employable choice.

There’s a current thread now about a Georgia Tech grad who can’t find a job with a biomedical engineering degree
 There are some undergrad STEM degrees that aren’t the launch pad parents think they are 


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I still stand by what I said. Taking on upwards of $200,000 in student & parent PLUS loans if you’re going to end up in the $50k/yr salary range is not the wisest choice, in my opinion.

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On this we agree. Crazy amount of debt.

Just pointing out that we people think of as “useful” degrees changes over time. And that Sports Management degree that looked like a sure-fire “immediate employment” investment doesn’t look so sure-fire when the new grad is handing out towels at the local gym and is having trouble pivoting because- well- his skills are “sports management”. And entry level roles for minor league sports team pay less than minimum wage if they aren’t overtime eligible (one reason these employers call everyone a manager. You don’t manage anyone- but you don’t get paid extra for your 70 hour workweek during the season).

Bio majors? Lab tech. Tough to repay loans on that. Etc.

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I think depends on where you went to college and not entirely a generational divide?

Everyone I knew from my college moved to a “cool city” (nyc, boston, dc, Chicago, SF, LA) for work unless going to a niche grad program or such.

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But note that, for those who are visible minorities, religious minorities, LGB, or T, the relative desirability/undesirability differences may be greater than for those who are not in these categories. If you would be subject to greater hostile discrimination in society, lack of government protection against such, or active government participation in such hostile discrimination in a given area, that may significantly increase the undesirability of the area compared to someone not in a category that is targeted.

Of course, if there is little or no other choice or the economic incentives are high enough, you may have to or be willing to put up with it. But it is a cost or consideration that applies to some people that may be unnoticed by other people.

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I don’t think that amount of debt is wise AT ALL. Even if you do get a high paying job


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That could be it. In my group people scattered, some to “cool cities” (in some cases people were from the cool cities, so they were just going back home) and some to other places. I think a lot of it could be chance, or we are just basing it on what we see in our friend groups. But I have noticed grads these days do seem pickier


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Agree. But the attitudinal differences between Albany (not a cool city) and Brooklyn (a cool city) have been, and still are, relatively negligeable for someone from a minority group. Or getting assigned to Springfield or Worcester Mass instead of Boston for your first rotational type job.

The young people I’m talking about IRL are working hard to explain to me (someone who is trying to help them launch) that I couldn’t possibly understand, UberEats, undiscovered music venues, etc. And I just scratch my head. It’s not a life sentence- it’s two years at most until they are ready for the next job!

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It depends how high much attending college is expected to improve career earnings, and whether there are adequate alternatives. For example, the median debt for students attending medical school in US is over $200k. However, I’d expect that the net return on a MD degree is still positive for the overwhelming majority of grads, and student loan delinquency for MD grads is quite low compared to other types of degrees.

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Agree with this. BUT- today’s students (in undergrad) grossly overestimate what doctors earn- at every stage of their careers. They are often shocked by resident’s salaries (which are publicly available), they are shocked by starting salaries post fellowship-- particularly for a hospitalist/employee which is increasingly common-- and they assume that the orthopedic surgeon/celebrity dermatologist working in Beverly Hills is going to approximate what THEY will be earning 15 years out.

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I agree. Somebody who is willing to move to where the job is will be more likely to actually get a job offer than somebody who is limiting their criteria to only certain cities.

And for whatever reasons it is that the person is limiting their geographic job search criteria, limiting your search IS a choice. And by choosing to only consider jobs in specific cities or specific parts of the US, then depending on what your field is, you COULD end up lowering your odds of getting a job.

Consider everybody right now who won’t apply for any jobs that require physically going into an office 2+ days a week. Don’t cry later on that you can’t find a job after graduation. How badly do you want to be able to eat and pay your rent?

Life is all about choices. A lot of people don’t have the luxury of being able to move back home with Mom and/or Dad after college graduation as a fall-back plan. Speaking from personal experience on this, when push comes to shove, those people WILL find a way to find a job. And no, it might not always be the primo fancy job that you’d planned for when you started college. But it’s a starter job and if you’re willing to hustle and work hard, you can work your way up into better opportunities.

If you have student loans to pay off and there’s no Bank of Mom & Dad who are going to float your car payment for you or give you extra money each month to help you out with rent, you have to figure your stuff out one way or another.

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that may well be true! I have no data either way..I do think current young people are far more idealistic than my peers