Saturday, May 13, 2017

Debt

Yesterday, I had a friend post on Facebook, without going into specifics, about the sheer magnitude of debt they are facing upon graduation from her husband's dental program at the University of Maryland.

This post is not meant to incite pity, or feelings of anger that I want a free lunch or anything like that. I don't believe these things should be free by any means; I mostly just want people to understand the sheer magnitude of money it takes to attend some professional schools, especially those in a metro area.

I won't go into exact specifics, but I am going to give you numbers. They just aren't our numbers. Our numbers are 10-20% higher.

Let's make a reasonable assumption that Caleb will find a hospital pharmacist job that pays $100,000 next year (nice, round number).

In Utah, after taxes, that will be an annual salary of $68,000, or $5,600 monthly.

To me, these numbers are HUGE. With good reason. They are. There is no complaining here.

To pay off our student loans in the expected 10 years, our monthly payment will be $3,100.

Or, $37,200 annually.

If we choose to take the 25 year repayment option, that number will be $1800/month, or $21,600 annually.

The number will be higher when it comes time for repayment, because the interest that has been accruing from day one will be added to the principal.

That interest is accruing at more than $30/day.

Which brings me to the third option, the income-based repayment plan.

Income-based repayment is 10% of your income.

Roughly, $10,000 per year.

If interest is accruing at $30/day, that comes out to just shy of $11,000 in interest per year on the original principal balance.

You would potentially never touch the principal of the loan.

After 25 years, the remaining amount is forgiven, and you are fully taxed on the forgiven balance that year. Oh, and then that balance that was forgiven is now a burden on the American taxpayers.

My friend, who lives far more frugally than I, but whose husband's education was probably 25% more expensive than our situation, was met with responses that went similar to this:

"You've gotta stay away from those student loans."

"You have to live frugally, or you'll be paying that off the whole 20 years."

"I know people who pay off their loans in 5 years and they live way more frugally than those who spend 20 years."

What I saw was a bunch of people who had the right idea, but really didn't understand how large of loans a lot of these professional students, or students from private universities, etc are walking away from school with.

Those who are able to save up and pay for school outright should be praised. That is AWESOME! But not always feasible when tuition and fees for an out-of-state student are almost $40,000/year for 4 years and living expenses are high in the area.

I'm not suggesting school should be free (it shouldn't...economics...hello), but I do think that an overhaul is needed. Can there not be a study or investigation into where the tuition and fees go and why the cost has increased so much?

I'm having a hard time finding any exact data, but suffice it to say that pharmacists who graduated even 10 years ago had nowhere near this cost to their education. Pharmacists Caleb has worked with over the last 4 years have asked him about the cost of his education, expecting it to be higher than theirs, and expecting him to say something like $20,000. He has gotten a sufficient number of dropped jaws to imply that this is crazy high.

I will say that some of Caleb's classmates are graduating without debt. Only a few students have children, many students live with their parents (some students' parents bought them a house to live in while in school!), and many students' parents paid for their education.

My friend's family is planning on taking the income-based minimum monthly payment plan and paying the taxes on the forgiven portion (likely around $350-400,000) after 25 years.

Caleb and I are hoping (and we may be in dream land) that he can find a job close to family (or in an affordable region if there are no jobs available near family) and find as affordable of housing as we can. That he can find a hospital position that has a dependable enough schedule that he can be a floater for another company a few times a month, and that I can find a job to work part time or full time with good childcare options. And that we can pound out our loans as quickly as possible.

We may have lofty and unreasonable hopes.

That's the current plan, but you never know what life will throw at you, so we are ever changing and adjusting, thinking of different scenarios.

I have a lot more to say on the matter, but it's much more jumbled than this already-jumbled post, and I think this gets my point across.

6 comments:

La Gringa said...

ay, that's crazy.

Alyson said...

Hello. I hear ya. You wanna have a conversation about student loan debt... I tell ya what, I've had about a million with our friends from law school and how are we going to ever pay this back and how we aren't making enough to ever make a dent and how we live just like we did when we were in school. We are over $200,000.00 and in an income based repayment program. And guess what we pay per month right now? Nothing. We make too little. Thank you government for shooting yourself in the foot. Paying their employees so little and as incentive come work for them for 10 years and let the loan become enormous. Can you imagine what our loan balance will be after ten years? It will be huge!

Alyson said...

Also, we can't leave this program because we can't afford the loan. And if the government doesn't make good on their promise to pay it off after our indenture is over, we are gonna be up a creek without a paddle.

Alyson said...

Also, we can't leave this program because we can't afford the loan. And if the government doesn't make good on their promise to pay it off after our indenture is over, we are gonna be up a creek without a paddle.

Alyson said...

Hello. I hear ya. You wanna have a conversation about student loan debt... I tell ya what, I've had about a million with our friends from law school and how are we going to ever pay this back and how we aren't making enough to ever make a dent and how we live just like we did when we were in school. We are over $200,000.00 and in an income based repayment program. And guess what we pay per month right now? Nothing. We make too little. Thank you government for shooting yourself in the foot. Paying their employees so little and as incentive come work for them for 10 years and let the loan become enormous. Can you imagine what our loan balance will be after ten years? It will be huge!

Kikigirl said...

Alyson,

It's nice to know I have someone closer who gets it. Unfortunate though it may be that we're in the same boat.

I don't want to downplay anyone else's student loans; it's just a completely different scenario. My $15,000 I took out for my undergrad degree is so vastly different from these hundreds of thousands.

I'm sure it will get better, and it may be due to the fact that I can't do much about it right now, but it is so overwhelming and is thought about and discussed several times daily in our house.