Is Your College Education Worth the Money?

Congrats! And welcome to student loan debt

It’s June, which means graduation for many youngsters (and not-so-youngsters). Many graduates are going through commencement ceremonies with prestigious degrees in hand, such as the Bachelor of Arts, the Master of Science, and the Doctor of Philosophy. While all these titles sound good on paper, are the titles even worth the paper that they are printed on?

Take for example Cortney Munna, who graduated in 2005 from New York University with an interdisciplinary bachelor’s degree in religion and women’s studies (1). Ms. Munna’s student loan debt stands at close to $100,000. Currently, Ms. Munna lives in San Francisco and earns $22/hour working for a photographer. Her rent is $750. With her after-tax take-home pay being about $2300/month, she would be scraping by if she also had to pay around $700/month on her student loan. Fortunately, that student loan is deferred, since Ms. Munna is attending night school. However, once her studies are finished, she will have only 6 months respite before the student loan reminders begin.

Then there are Jessica and Matt Moore, who graduated in 2009 and 2007, respectively, and who collectively owe over $55K in student loan debt (2). The Moores pay $550/month on their student loans, and will continue to pay that $550/month for the next 10-15 years. Both parties held jobs during their school years, yet even this did not eliminate their need to obtain loans in order to finance their educations. Currently, while both Moores are employed and do make enough money to cover their bills, there are months where they barely get by.

The College Board Advocacy and Policy Center reports that, in the 2007-08 academic year, at least 2/3 of students graduating with a bachelor’s degree were in debt following graduation (3). Of that amount, at least 17% owed over $30,500. The nonprofit group Project for Student Debt estimates that most students leave school with around $23,200 in student loan debt (4). That doesn’t even include the $4,100 in credit card debt.

Student loan debt would not be so scary if there was a way to pay it off- such as with, say, a $75,000/year entry-level job. Unfortunately, in this economy, even snagging a $10/hour job may be unrealistic. Stories abound of graduates living with their parents for several years after graduation. While not a bad thing in itself, the trend towards moving back home is not an indication of student thriftiness but rather the blatant realization that the job market is not all it’s cracked up to be.

College does NOT equal a job

In fact, according to the Economic Policy Institute, due in part to the economic recession of 2001, the percentage of unemployed college graduates has actually exceeded the percentage of unemployed high school dropouts (5). That’s right: the old adage about college leading to a good paying job may not necessarily be true. Saddle that post-graduation unemployment with massive student loan debt and you have a recipe for bankruptcy.

…except for one small hitch: a bankruptcy declaration does not dismiss student loan debt. Unfortunately, student loan debt is one of those pesky little things, much like child support or legal fines, which must be paid off.

Do a financial assessment first

What can you do to avoid getting into this mess? To begin with, take a hard look at your desired degree. Then, study the job market employing people with this degree. Are many newly employed people reporting that that they have a degree in your desired field of study?

Second, talk with your college counselor about potential jobs in your field of study before you undertake your study. Obtain information on how much your college or university will help you find work in your field post-graduation. Schools are only too happy to sell you a degree upfront, and then leave the job-hunting to you. After all, their primary objective is to make money, not worry about your future career.

For more information on how to better prepare yourself for actually becoming employed after graduation, read my other post entitled “Graduation…and debt”.

If you already have a student loan

What if you are one of those newly-minted graduates with student loan debt? What options are available to you? First of all, assess your financial situation. If you are unemployed and have no savings, opt for an unemployment deferment or a financial hardship deferment on your student loan. The nice thing about these types of deferments is that the government pays the interest on your deferred federal loans.

Secondly, research income-based repayment (IBR). This program calculates what you currently earn and calculates your loan payments to be no more than 15% of your disposable income. Ergo, if you have no actual income, you don’t need to make any kind of student loan payment.

If you happen to land a job, check if it is classified as being in the public sector, in a nonprofit group, or in an area of national need. If it is, you my actually qualify for loan forgiveness. Loan forgiveness is also something to look into if you are a primary or secondary school teacher.

Don’t forget to ask about graduated payment plans too. If you are employed, but earning very little money, your student loan agency may enroll you in a graduated payment plan where you pay more money towards your loan as your earnings increase. If all else fails, try asking for loan forbearance. Your interest will continue to accumulate, but at least you won’t have a collection agency calling you at work or at home. Likewise, lenders have the power to garnish your wages, seize income tax refunds and inheritances, and even clean out your savings accounts. Thus, if you have student loan debts, do not ignore them.