Seriously, where did we go wrong with student loans and higher education?
I actually know a few reasons, but if we are just talking student loans – nothing else – the inflation and the price of a college degree is just out of control.
Straight up- student loan issues aka defaulting, interest, lack of transparency are hurting borrowers left and right.
According to sources from Value Penguin and College Board, the average price for a college degree in 2018 will run the average person in public colleges: $25,290 (in-state) $40,940 (out-of-state) and $50,900 for private colleges.
Now at first glance I laughed at those numbers. I preface that with, keep in mind the word average. That means smack dab right in the middle, 50%. That means that half pay more than those numbers, and the other half pays less.
(Sort of like when they said the median average annual earnings in a profession when you were choosing a major… yet when you graduate you are confused as to why you are not even close to that number… it’s a median average, AKA it includes the people in that career field for 40 years too)
I honestly found those numbers significantly low for a four year degree, which I hope is true. I was actually confused when reading several sources on student loans as to whether this was yearly or for a 4 year degree.
Common Student Loan Issues
College is expensive, no doubt. I often compare the inflation of college tuition over the last 18 years to imagining if a coke went from $1.00 to $5.00.
In a second I will actually show the costs of a public college in the state of Virginia, one that I actually got into back in 2005, when it was about $9,000 a year, not $14,000 a semester.
But bear with me for a second (Bear is the correct way, bare with me is an invitation to undress together, no thanks).
Ok, so let’s pretend that those numbers are accurate. That if you go to school you should expect to graduate in 4 years and spend on average, somewhere between $25,000 and $50,000.
Related: 4 Factors to Consider Before Refinancing Student Loans
That is not really all that bad, $6,250 to $12,500 per year for a college degree. Not really a big deal. In fact, the student loan amortization on those numbers for 5 years of repayment with a 6% interest rate would be around $480 to $965 give or a take a few dollars. The borrower would pay $4,000-$8,000 in interest. Once again, not bad.
But here is the kicker. Those numbers seem low. Really low.
In fact, I am going to show you a chart of college tuition costs here in a second… and all of this leads to my hypothetical question if a college degree is more like $100,000, is it worth paying $100,000 for a $50,000 job?
The Average Starting Salary vs College Debt
A recent USA Today article stated the average starting salary for the class of 2018 is $50,000. Once again I emphasize average. Roughly 50% start less than that, while the other 50% start higher.
But for the sake of argument everything will hinge on that number, $50,000.
And because I happen to live in Virginia, as far as college degree costs, I will use the following college costs:
Virginia Commonwealth University's 2018-2019 Tuition and Fees Charges
Personally, I find this chart confusing, lengthy, and unclear. Heck, I write about student loans and easily get confused. What does a normal person think? But that is really beside the point, just another knock on student loan transparency. I decided to use VCU for several reasons.
For starters, when I wrote, “When Do We Question College Tuition Costs,” I was referencing my cousin who got into VCU. Overall, VCU is a great school, that has a great medical science reputation, but I got in (so that doesn't say much).
However, it is important to point out that on average, Virginia is top 8 most expensive when it comes to public college. So statistically speaking, college is cheaper in 85% of the other states. However, Virginia also has on average, much higher wages and salaries than other states.
For example, the median household income in Loudoun County, VA is $125,000.
Presently, at VCU in-state tuition per semester (living off campus) is $14,490. Out of state, $35,978. A simple google search of “VCU Yearly Tuition Costs” cited the costs at $27,000 in state- per year, $46,000 out of state – per year.
Hypothetical Six-Figure Student Loan Scenario:
Hypothetically speaking, an average student goes to VCU as a Virginia resident, lives off-campus for four years, and actually graduates in 4 years. Total Cost: $108,000, but let’s say they got a $2,000 per year scholarship, so it was actually $100,000.
They land their first job making $50,000 a year in a suburb of a big city working for a tech group. They get a 3% raise each year.
Using the $100,000 student loan bill paired with a 5% interest rate and a standard repayment time frame of 10 years, let’s look at the salary and student loan repayment chart side by side.
Salary Compared to Student Loan Payment Chart:
|Year||Salary (with 3% annual raise)||Monthly Income (Net after 25% to taxes, etc):||Student Loan Monthly Payment||Student Loan Balance|
|Year 10||$85,043||$5,315||$1,060||Paid Off!|
|Total Made:||Gross: $661,000||Net: $491,412||Total Paid:||$127,278|
The costs of getting ahead are getting higher.
As you can see in year 1, it is brutal. Over 33% of your take home goes to student loans. In fact, since over 33% of earnings is accounted for in the form of student loans, its equivalent to having a job that has a take home of $21,000.
Over the long haul, after getting a 3% raise EVERY YEAR (that doesn’t usually happen) and paying off all of the student loans this hypothetical person would have made the equivalent of $36,000 per year take home, on average.
Wow at age 32/33, 10 years after graduating, I have brought home on average $3,000 a month. Not a lot of money if we are being honest.
While YES a $3,000 net might be decent in some ares there is a kicker. Most careers that involve a college degree place new graduates in areas where the cost of living is through the roof.
So now they throw in rent, cars, utilities, LIFE, food, kids, weddings, clothes… not a lot of room for error.
Not a lot of room to start a business.
Not a lot of room to really do anything.
In fact, that is why more millennials are taking on consumer debt (CNBC Money) not to just keep up, but honestly to survive. How can we expect a population where 25-33% of their income goes to a student loan payment to not worry about their finances? Is there any correlation why some just sort of give up?
How we fix student loan issues.
My message is simple. If you have student loans just pay them off. Most of my readers are done with college so when I write about student loans I am more so hoping that others will help create a pier dime shift.
When people say oh I am just going to college because that is what you do, maybe you stop them and say something.
Why do you want to go to college? Do you know the costs? Do you know how much you will make with said degree? How long will that degree take? Have you ever met someone in that career field?
The list of questions before going to college should be more then a college application to a pretty school with cool colors and a sweet night life.
Societal pressures are at an all time high. Non-degree people are looked down upon at times but at the same time, their salary can trump the one's with degrees.
It really boils down to what do you want out of life.
Did you take out student loans to sit behind a desk? Was that your goal?
If you are 30, are you where you thought you would be?
If not then I would start making sure you do things differently. But also, help the next generations realize there are other options.
College is not bad. I am not saying that. But just like when I bought my first car I didn't get a $50,000 brand new SUV, I got a $5,000 Honda civic.
Think logically when it comes to school debt.
Sources: Valuepenguin and VCU
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $200,000 in student loans with his wife in less than four years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, helping others with their debt and recommend using Personal Capital to track your finances.