12 ms·

How Student Debt Reduces Lifetime Wealth

45 points by SQL2219 9y ago

nunez 9y ago
I'm going to take a contrarian approach and say that I'm actually really glad that I had to pay my way through college with loans. I started with ~$200k in undergrad loans and have ~$45k left. First, without having taken those loans, I wouldn't have been able to go to the kind of college I did or establish the career that I now have. Full stop. Tuition and lodging was ~$40k for my first year. My parents definitely couldn't afford to send us there with cash, and no job or saving would've paid me enough to pay that note. I specifically avoided going to my comm college for my first two years despite it being free because I really really REALLY REALLY needed to leave my house. I had a ton of issues with my dad that only got fixed after leaving the house. We're cool now, but I don't think that would have been our outcome had I not left. My college (and me learning how to code) was the biggest reason why I went from graduation to a $125,000/year salary within two years of graduating. While I might have gotten the same outcome had I gone to a comm college and transferred, the age of the people I interviewed for my job that did that did not suggest this. Perhaps I could've gotten a foot in the door by going to a Hacker school or dogging it on my own; I don't know. My school (stevens tech) and my course of study (Computer Engineering) made it really easy to get interviews at top places for great jobs; that's all that mattered to me and that's all that matters now. Also, who knows what decisions I would've made in those two years that I didn't make because I left. I love my folks, but they are pretty bad with money and don't know anything about my industry. I was also not very good at socializing with people going into college; moving to NYC and going out and about fixed that and has helped me immeasurably since. I wasn't good at dating and kept bouncing back to a relationship with my first girlfriend to avoid having to look. She was a lovely person, but we had very different families, life goals and personalities. I am incredibly thankful for the years I spent earning how to date and branching out to other women; I would never have met my soon-to-be-wife without that experience. I have college (and the loan that enabled me to stay there) to thank for that. The money thing leads me to the second reason why I'm grateful for having taken those loans. Between trying to pay these loans back, my salary and reddit.com/r/personalfinance, I learned a SHIT TON about how to manage my finances. I have a spreadsheet that tells me everything about my money: who I owe, what I owe, what services I have, how much they are, when they started and stopped, etc. More importantly, I can copy it, edit some numbers and instantly have a model for what my finances will look like if I buy a house, have n kids, buy an additional car, etc. It's paramount in helping me negotiate salary and helped a lot in predicting what my finances would look like after moving to DFW from NYC. The ONLY reason why that spreadsheet (and my financial health, which needs work) exists is because of student loans. Now, it would've been GREAT if I didn't pay for college like my peers did. But I wonder how much money I would've wasted had I been in that situation. I could've done a wa better job of using the money I made from my time in cooperative education paying back my loans. Didn't have the financial discipline. When looked at from that way, I think learning how to manage my money through student loans INCREASED my future worth because I can now make better and more confident decisions about how I spend my money.
- austenallred 9y ago
  > I went from graduation to $125,000/year salary within two years of graduating So long as that is part of the story it's a great deal. The problem arises when it isn't.
  - Y7ZCQtNo39 9y ago
    If you apply yourself, and do your due diligence (e.g., see average salaries for fresh college grads at prominent employers for your college major); then yes, you will command the appropriate market salary. It's not an exact target: industry trends could change, the macroeconomic landscape could change, but overall performing due diligence is 95% of it, since you can't control whether or not the market enters a correction when you graduate. But if you majored in underwater basketweaving and expected to feed yourself, I have little sympathy.
    - austenallred 9y ago
      That's easy to say (and I make plenty, I'm not worried about myself), but I definitely feel bad for the people that never had anyone pull them aside and explain that to them. If you buy the trope of "do what you're passionate about" or "follow your dreams" you can get caught in a hole you can never dig out of by the time you're 20 and before you've ever experienced what the real world is like. That's pretty brutal.
      - Y7ZCQtNo39 9y ago
        I think colleges need to take a responsibility in understanding their pivotal role in creating middle class workers. People aren't going to college to "better themselves", they're going to make sure they can survive today. I do feel bad for those bad people who don't know any better. I was one of those people that nobody ever pulled aside. I grew up in a working class family. Out of college, my annual salary was higher than the value of my childhood home. It's still possible to dig yourself out if you have grit and know what you want for yourself. I don't know what set of life events has to instill that in a person, and I'm not saying because it worked for me, there isn't a problem-- there definitely is.
shmerl 9y ago
Student debt should have no interest. Better even, there should be free education to begin with.
- downrightmike 9y ago
  All student loan interest really is, is true double taxation.
  - JimmyAustin 9y ago
    Only in the same way a processing fee at the DMV is. That said, an Australian HECS style debt (tied to CPI) with a minimum repayment threshold (roughly 50k AUD) makes a lot more sense.
    - downrightmike 9y ago
      Looks like the Aussies got educational spending right, with the amount being owed to the gov is ~10% of the US. "Australian citizens (and in some cases overseas professionals completing bridging studies in order to be accredited permanent residents[2]) are able to obtain interest free loans from the government under the Higher Education Loan Programme (HELP) which replaced the Higher Education Contribution Scheme (HECS). As of April 2016, the amount of money owed to the Australian government under the HECS scheme was AUD$60 billion and is expected to increase to $180 billion by 2026."[1] "The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion."[2] You also are not hopefully paying that $500 DMV fee every month for the next 10 years. [1] https://en.wikipedia.org/wiki/Tertiary_education_fees_in_Australia https://en.wikipedia.org/wiki/Tertiary_education_fees_in_Aus... [2] https://en.wikipedia.org/wiki/Student_debt https://en.wikipedia.org/wiki/Student_debt
  - downrightmike 9y ago
    Edit: taxed on income and then also paying the interest. Really, it should be paid with pre tax money, like a 401k. They are both vehicles for future success.
- ChrisLomont 9y ago
hiram112 9y ago
Lifetime wealth might be a good way to aggregate the results, but the practical consequences of student debt are far more insidious. If half the educated population is still paying off loans in their late 20s and even 30s, this delays and reduces family formation and population a.k.a. child free. This will eventually destroy the housing market, especially in the sprawling suburbs. If suburbia goes, it takes down the auto industry and the conspicuous 'big-box' retail industry, which we are already seeing. Next comes the bankruptcy of Western social programs - social security, medicare, pensions, general retirement in one's mid 60s - all of which is not actually based on any sort of 'savings' but instead are paid for by the younger generation, which must always be larger the previous, in true pyramid style. I'm guessing that the collapse of the big school loan bubble, originating in the US, and now cloned in the Anglosphere and beyond, William make the housing bubble look like a cake walk. School loans are further down the chain than mortgages being backed by the government itself.
- Y7ZCQtNo39 9y ago
  The cyclical pattern you mention is concerning. Our government should be mandating cheaper housing and encouraging child rearing. Otherwise, we'll end up like Europe with flat or negative population growth. Our path forward mostly depends on having more people than before (which in itself is not sustainable indefinitely), unless we see radically new policy, like UBI.
carsongross 9y ago
We need to re-moralize the language around debt and bring back the concept of usury. There is a reason the European middle ages were so hard on the matter, it came from the experiences of the late roman empire when debt consolidated wealth and then destroyed the social order. (Sound familiar?) Some ancient usury-based systems had the good sense to have a debt jubilee every fifty years or so to stave off complete societal collapse. Steve Keen has proposed a modern implementation of such a debt jubilee: http://www.ideaeconomics.org/a-modern-jubilee/ http://www.ideaeconomics.org/a-modern-jubilee/ Sticking our kids, especially our intelligent ones, in this much debt before they even have a chance at family formation is deeply dysgenic and is civilizational suicide.
- johnnyb9 9y ago
  I think even better would be to have the federal government get out of the student loan business altogether -- it's been shown that as 60% of federal aid increases end up increasing tuition by that amount.
- maxerickson 9y ago
  Bankruptcy is a personal jubilee. I think if you are talking about societal policies, we should try to move away from credentialism and better fund people that want to go study. How you do that I have no idea.
- nandemo 9y ago
  Student loans are largely subsidized. If you call that usury then you'll have to call any interest-bearing loans "usury". The main issue is why US tertiary tuition is so high in the first place. In fact, the virtually unlimited supply of student loans is part of the problem (more loans -> more demand for college -> colleges raise the price).
Mz 9y ago
Though a college education remains the surest path to a middle-class life, evidence has begun to mount that student debt may be far more detrimental to financial futures than once thought, particularly for those with the highest levels of debt: students of color and students from low-income families. •The wealth loss will be greater for households with larger-than-average levels of student debt: students from low-income families, students of color, and for-profit students. Well, that sucks. The behinder you are, the behinder you get. Ugh.
- abalashov 9y ago
  The ultimate the-behinder-you-are-the-behinder-you-are debt is IRS debt, of which I have six figures' worth. Paying back-tax debt out of future income that is itself taxable leaves you with the ability to, in the best case, maybe pay some of the interest and penalties on the back principal + future taxes. Unless you win the lottery or somehow experience a meteoric/extraordinary rise in earnings, of course. And that comes with tax consequences of its own.
  - cheez 9y ago
    How'd you get that?
    - abalashov 9y ago
      Didn't pay taxes for a few years. It's not terribly difficult to get into this situation if you bootstrap a business over a relatively high personal expense base with no savings and no capital. "I swear, I'mma totally save money for quarterly SE taxes this time. Gonna get straight with Jesus." But a bad month or two and crappy cash flow later, paying the mortgage and buying groceries win out once again, as do certain strategic investments like hiring people (which don't pan out because all you can afford is entry-level folk in a business model tailored to the exact opposite). And again. And before you know it, a few years have gone by like that. Later, you make more money, but make more dumb decisions that get you even further away from getting straight with Jesus. Marriage and child, followed by expensive divorce (note to self: mid-high five-figure legal fees are not tax deductible and the IRS could give two craps about your divorce). File separately to protect your wife from your own tax liabilities like some sort of overly proud Walter White, getting smacked with massive penalties because you didn't file jointly. On top of that, be sure to do some even crappier tax planning on the business side, like having an LLC without an S-corp election, and paying 15.3% SEP tax on everything net of business expenses because you're too lazy to do a little paperwork or to hire accountants who can properly quantify the issue and educate you. Do some other stupid shit that a 21 year-old would do, like buy a condo at the top of the bubble and get stuck with a -48% underwater value (even in 2015!). Have a foreclosure and a deficiency lawsuit while you're at it. It's pretty easy to compound the problem. Hindsight is all 20/20, but I went out on my own when I was 22 and had little to no business experience. It took some time to learn to drive the chariot right and not fly it into the Sun, and by that point I was up to my ears in tax issues. Man, what I'd give for the student loan problems typical of my late-20s/early-30s compatriots... I've been thinking about expanding this sordid tale into a blog post, but need to find a way to avoid it sounding like a sob story and focus instead on educational and actionable takeaways for other precocious young entrepreneurs who get in over their head. That's challenging from a rhetorical point of view; the optics of this situation scream "feel sorry for me" more than "here are a few stupid mistakes to avoid which carry big consequences".
qwerty2020 9y ago
wrote something along these lines a couple weeks ago: http://erikrood.com/Posts/college_roi_.html http://erikrood.com/Posts/college_roi_.html The net is to treat your tuition like you would any other investment (while also acknowledging the non-monetary benefits) -- thoughtfully weigh all options before blindly heading into college because it's 'the right thing to do'.
- duckingtest 9y ago
  I think the real difference is much more pronounced than what your analysis suggests. A significant fraction of people without college-level education aren't able to pass the non-financial admission requirements, or drop out. Which almost certainly means that earnings of those who could easily finish but decide not to are going to be much higher, making the decision to not go even better. Sadly, I don't think any relevant statistics exist.
k__ 9y ago
This is really sad. I had bad luck studying computer science in the short time when there was tuition fees of 500€ per semester in Germany. It "only" cost me 3500€, which I paid back 1 year after. Didn't have to take any loans, because I worked as a developer on the side, while studying. Some of my friends were less lucky, they couldn't work on the side and had to take a loan. We have some subsidised loans here in Germany, where you only have to pay back half of it and only to a maximum of 10k€, but that's still rather much for many people, especially if their entry jobs don't pay that well. So they starting their "working life" and already got 10 years of debt.
dkarapetyan 9y ago
So don't go into student debt. Go to your local community college and then transfer somewhere affordable. I've now worked with grads from all over the place. I honestly can't tell the difference.
- nunez 9y ago
  There are a LOT of factors that you're not considering with that statement. For some (many?), the decision isn't that easy. Here's why: - Are you going to college to escape a really bad situation at home? - Are you going to college because your local community college isn't good at preparing you for a four-year college and has a bad/incompatible atmosphere? - Are you going to college because you'll be ostracized by your family (that you love very much) if you don't, even if you (or they) can't afford it? - Are you going to college because the study that you feel is your life calling can only properly begin at a reputable four year?
  - dkarapetyan 9y ago
    I don't get what point you are making. How is any of what you said reason to go into huge debt?
    - wmichelin 9y ago
      Agreed, sounds like this person is trying to make excuses for themselves or something.
    - nunez 9y ago
      because sometimes you do whatever you can to get out of a bad situation, even if it means taking on student loan debt but clearly you've never had to deal with that; be fortunate for that
  - wmichelin 9y ago
    At the end of the day, you will be the one in debt. It's your own stupid fault for giving into those pressures if they're exerted upon you. You shouldn't buy something you can't afford, no matter what. If you choose to, you are responsible for the consequences. That's all.
cryoshon 9y ago
glad to see this getting attention. there was one thing which i'll take issue with, which is in figure 5. nobody that i know who has student loans can afford to pay that much per year, meaning that this figure is extremely optimistic and likely not representative of the median case-- which is fine because it still gets the point of the authors across, but it's missing some context. anecdotally, 7 years out of college has left me and a few people i know with scarcely 2k shaved from our principles, with the rest lost to paying off the 6.5% interest. people don't have incomes which rise quickly enough to make headway against the loans. thankfully the article comments about the deferred retirements savings caused by student loan burden. this is a hugely important issue that requires a jubilee or some other radical measure... but will likely not have one barring major societal disruption which the current trajectory is barreling us towards.
- delazeur 9y ago
  > nobody that i know who has student loans can afford to pay that much per year I think that's cumulative cost, not annual cost. Hard to say though; it's not a very good figure.
grecy 9y ago
It is really sad that the wealthiest country in the world shackles it's young people with crippling debt if they attempt to get an education. My load from Australia is interest free, I only have to pay it back at a very low rate when I earn over $45k per year, and it was $20k (TOTAL!) for a 5 year Bachelor of Software Engineering.
- owengriffiths 9y ago
  College students will have to pay the cost of their college educations one way or another. Either with loan repayments or higher taxes. The problem is how much people in the US spend on getting a college education, not the funding mechanism. (ie living away from home, rather than living at home like most of us do in Aus).
  - surfmike 9y ago
    Having it tied to income definitely makes it less crippling for those who have trouble in the job market after college. Like most grads after 2008 in the US for example, who got unlucky.
  - boomboomsubban 9y ago
    >College students will have to pay the cost of their college educations one way or another. Either with loan repayments or higher taxes. If I'm buying a hundred thousand tuitions, presumably I can negotiate a lower price far easier than if I'm buying one. Additionally, even if their total monthly income was the same, not being in a large amount of debt could be a positive. Many would feel more comfortable taking a loan to start a business or build a house, and it would be easier to justify spending without needing to worry about debt interest.
  - nandemo 9y ago
    Perhaps you meant "e.g." ("for example") and not "i.e." ("that is")? Because I'm pretty sure boarding costs aren't the only issue. I don't know about Australia, but tuition in Japan is much more reasonable than in the US.
- Y7ZCQtNo39 9y ago
CryoLogic 9y ago
Why not make it so instead of loans, the university gives you 4 years of free school and than gets say 10% of your next 4 years of income? Than the school has incentives to improve the academics in your favor.
- madengr 9y ago
  If that's the case you would only need to work 1 hour a day to pay your way through school, while at school. They would need to take 10% of your income for a lot longer than 4 years.
BJanecke 9y ago
Doesn't all debt reduce lifetime wealth?

45 points by SQL2219 9y ago

I'm going to take a contrarian approach and say that I'm actually really glad that I had to pay my way through college with loans. I started with ~$200k in undergrad loans and have ~$45k left. First, without having taken those loans, I wouldn't have been able to go to the kind of college I did or establish the career that I now have. Full stop. Tuition and lodging was ~$40k for my first year. My parents definitely couldn't afford to send us there with cash, and no job or saving would've paid me enough to pay that note. I specifically avoided going to my comm college for my first two years despite it being free because I really really REALLY REALLY needed to leave my house. I had a ton of issues with my dad that only got fixed after leaving the house. We're cool now, but I don't think that would have been our outcome had I not left. My college (and me learning how to code) was the biggest reason why I went from graduation to a $125,000/year salary within two years of graduating. While I might have gotten the same outcome had I gone to a comm college and transferred, the age of the people I interviewed for my job that did that did not suggest this. Perhaps I could've gotten a foot in the door by going to a Hacker school or dogging it on my own; I don't know. My school (stevens tech) and my course of study (Computer Engineering) made it really easy to get interviews at top places for great jobs; that's all that mattered to me and that's all that matters now. Also, who knows what decisions I would've made in those two years that I didn't make because I left. I love my folks, but they are pretty bad with money and don't know anything about my industry. I was also not very good at socializing with people going into college; moving to NYC and going out and about fixed that and has helped me immeasurably since. I wasn't good at dating and kept bouncing back to a relationship with my first girlfriend to avoid having to look. She was a lovely person, but we had very different families, life goals and personalities. I am incredibly thankful for the years I spent earning how to date and branching out to other women; I would never have met my soon-to-be-wife without that experience. I have college (and the loan that enabled me to stay there) to thank for that. The money thing leads me to the second reason why I'm grateful for having taken those loans. Between trying to pay these loans back, my salary and reddit.com/r/personalfinance, I learned a SHIT TON about how to manage my finances. I have a spreadsheet that tells me everything about my money: who I owe, what I owe, what services I have, how much they are, when they started and stopped, etc. More importantly, I can copy it, edit some numbers and instantly have a model for what my finances will look like if I buy a house, have n kids, buy an additional car, etc. It's paramount in helping me negotiate salary and helped a lot in predicting what my finances would look like after moving to DFW from NYC. The ONLY reason why that spreadsheet (and my financial health, which needs work) exists is because of student loans. Now, it would've been GREAT if I didn't pay for college like my peers did. But I wonder how much money I would've wasted had I been in that situation. I could've done a wa better job of using the money I made from my time in cooperative education paying back my loans. Didn't have the financial discipline. When looked at from that way, I think learning how to manage my money through student loans INCREASED my future worth because I can now make better and more confident decisions about how I spend my money.

austenallred 9y ago
> I went from graduation to $125,000/year salary within two years of graduating So long as that is part of the story it's a great deal. The problem arises when it isn't.
- Y7ZCQtNo39 9y ago
  If you apply yourself, and do your due diligence (e.g., see average salaries for fresh college grads at prominent employers for your college major); then yes, you will command the appropriate market salary. It's not an exact target: industry trends could change, the macroeconomic landscape could change, but overall performing due diligence is 95% of it, since you can't control whether or not the market enters a correction when you graduate. But if you majored in underwater basketweaving and expected to feed yourself, I have little sympathy.
  - austenallred 9y ago
    That's easy to say (and I make plenty, I'm not worried about myself), but I definitely feel bad for the people that never had anyone pull them aside and explain that to them. If you buy the trope of "do what you're passionate about" or "follow your dreams" you can get caught in a hole you can never dig out of by the time you're 20 and before you've ever experienced what the real world is like. That's pretty brutal.
    - Y7ZCQtNo39 9y ago
      I think colleges need to take a responsibility in understanding their pivotal role in creating middle class workers. People aren't going to college to "better themselves", they're going to make sure they can survive today. I do feel bad for those bad people who don't know any better. I was one of those people that nobody ever pulled aside. I grew up in a working class family. Out of college, my annual salary was higher than the value of my childhood home. It's still possible to dig yourself out if you have grit and know what you want for yourself. I don't know what set of life events has to instill that in a person, and I'm not saying because it worked for me, there isn't a problem-- there definitely is.

shmerl 9y ago

Student debt should have no interest. Better even, there should be free education to begin with.

downrightmike 9y ago
All student loan interest really is, is true double taxation.
- JimmyAustin 9y ago
  Only in the same way a processing fee at the DMV is. That said, an Australian HECS style debt (tied to CPI) with a minimum repayment threshold (roughly 50k AUD) makes a lot more sense.
  - downrightmike 9y ago
    Looks like the Aussies got educational spending right, with the amount being owed to the gov is ~10% of the US. "Australian citizens (and in some cases overseas professionals completing bridging studies in order to be accredited permanent residents[2]) are able to obtain interest free loans from the government under the Higher Education Loan Programme (HELP) which replaced the Higher Education Contribution Scheme (HECS). As of April 2016, the amount of money owed to the Australian government under the HECS scheme was AUD$60 billion and is expected to increase to $180 billion by 2026."[1] "The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion."[2] You also are not hopefully paying that $500 DMV fee every month for the next 10 years. [1] https://en.wikipedia.org/wiki/Tertiary_education_fees_in_Australia https://en.wikipedia.org/wiki/Tertiary_education_fees_in_Aus... [2] https://en.wikipedia.org/wiki/Student_debt https://en.wikipedia.org/wiki/Student_debt
- downrightmike 9y ago
  Edit: taxed on income and then also paying the interest. Really, it should be paid with pre tax money, like a 401k. They are both vehicles for future success.
ChrisLomont 9y ago

hiram112 9y ago

Lifetime wealth might be a good way to aggregate the results, but the practical consequences of student debt are far more insidious. If half the educated population is still paying off loans in their late 20s and even 30s, this delays and reduces family formation and population a.k.a. child free. This will eventually destroy the housing market, especially in the sprawling suburbs. If suburbia goes, it takes down the auto industry and the conspicuous 'big-box' retail industry, which we are already seeing. Next comes the bankruptcy of Western social programs - social security, medicare, pensions, general retirement in one's mid 60s - all of which is not actually based on any sort of 'savings' but instead are paid for by the younger generation, which must always be larger the previous, in true pyramid style. I'm guessing that the collapse of the big school loan bubble, originating in the US, and now cloned in the Anglosphere and beyond, William make the housing bubble look like a cake walk. School loans are further down the chain than mortgages being backed by the government itself.

Y7ZCQtNo39 9y ago
The cyclical pattern you mention is concerning. Our government should be mandating cheaper housing and encouraging child rearing. Otherwise, we'll end up like Europe with flat or negative population growth. Our path forward mostly depends on having more people than before (which in itself is not sustainable indefinitely), unless we see radically new policy, like UBI.

carsongross 9y ago

We need to re-moralize the language around debt and bring back the concept of usury. There is a reason the European middle ages were so hard on the matter, it came from the experiences of the late roman empire when debt consolidated wealth and then destroyed the social order. (Sound familiar?) Some ancient usury-based systems had the good sense to have a debt jubilee every fifty years or so to stave off complete societal collapse. Steve Keen has proposed a modern implementation of such a debt jubilee: http://www.ideaeconomics.org/a-modern-jubilee/ http://www.ideaeconomics.org/a-modern-jubilee/ Sticking our kids, especially our intelligent ones, in this much debt before they even have a chance at family formation is deeply dysgenic and is civilizational suicide.

johnnyb9 9y ago
I think even better would be to have the federal government get out of the student loan business altogether -- it's been shown that as 60% of federal aid increases end up increasing tuition by that amount.
maxerickson 9y ago
Bankruptcy is a personal jubilee. I think if you are talking about societal policies, we should try to move away from credentialism and better fund people that want to go study. How you do that I have no idea.
nandemo 9y ago
Student loans are largely subsidized. If you call that usury then you'll have to call any interest-bearing loans "usury". The main issue is why US tertiary tuition is so high in the first place. In fact, the virtually unlimited supply of student loans is part of the problem (more loans -> more demand for college -> colleges raise the price).

Mz 9y ago

Though a college education remains the surest path to a middle-class life, evidence has begun to mount that student debt may be far more detrimental to financial futures than once thought, particularly for those with the highest levels of debt: students of color and students from low-income families. •The wealth loss will be greater for households with larger-than-average levels of student debt: students from low-income families, students of color, and for-profit students. Well, that sucks. The behinder you are, the behinder you get. Ugh.

abalashov 9y ago
The ultimate the-behinder-you-are-the-behinder-you-are debt is IRS debt, of which I have six figures' worth. Paying back-tax debt out of future income that is itself taxable leaves you with the ability to, in the best case, maybe pay some of the interest and penalties on the back principal + future taxes. Unless you win the lottery or somehow experience a meteoric/extraordinary rise in earnings, of course. And that comes with tax consequences of its own.
- cheez 9y ago
  How'd you get that?
  - abalashov 9y ago
    Didn't pay taxes for a few years. It's not terribly difficult to get into this situation if you bootstrap a business over a relatively high personal expense base with no savings and no capital. "I swear, I'mma totally save money for quarterly SE taxes this time. Gonna get straight with Jesus." But a bad month or two and crappy cash flow later, paying the mortgage and buying groceries win out once again, as do certain strategic investments like hiring people (which don't pan out because all you can afford is entry-level folk in a business model tailored to the exact opposite). And again. And before you know it, a few years have gone by like that. Later, you make more money, but make more dumb decisions that get you even further away from getting straight with Jesus. Marriage and child, followed by expensive divorce (note to self: mid-high five-figure legal fees are not tax deductible and the IRS could give two craps about your divorce). File separately to protect your wife from your own tax liabilities like some sort of overly proud Walter White, getting smacked with massive penalties because you didn't file jointly. On top of that, be sure to do some even crappier tax planning on the business side, like having an LLC without an S-corp election, and paying 15.3% SEP tax on everything net of business expenses because you're too lazy to do a little paperwork or to hire accountants who can properly quantify the issue and educate you. Do some other stupid shit that a 21 year-old would do, like buy a condo at the top of the bubble and get stuck with a -48% underwater value (even in 2015!). Have a foreclosure and a deficiency lawsuit while you're at it. It's pretty easy to compound the problem. Hindsight is all 20/20, but I went out on my own when I was 22 and had little to no business experience. It took some time to learn to drive the chariot right and not fly it into the Sun, and by that point I was up to my ears in tax issues. Man, what I'd give for the student loan problems typical of my late-20s/early-30s compatriots... I've been thinking about expanding this sordid tale into a blog post, but need to find a way to avoid it sounding like a sob story and focus instead on educational and actionable takeaways for other precocious young entrepreneurs who get in over their head. That's challenging from a rhetorical point of view; the optics of this situation scream "feel sorry for me" more than "here are a few stupid mistakes to avoid which carry big consequences".

qwerty2020 9y ago

wrote something along these lines a couple weeks ago: http://erikrood.com/Posts/college_roi_.html http://erikrood.com/Posts/college_roi_.html The net is to treat your tuition like you would any other investment (while also acknowledging the non-monetary benefits) -- thoughtfully weigh all options before blindly heading into college because it's 'the right thing to do'.

duckingtest 9y ago
I think the real difference is much more pronounced than what your analysis suggests. A significant fraction of people without college-level education aren't able to pass the non-financial admission requirements, or drop out. Which almost certainly means that earnings of those who could easily finish but decide not to are going to be much higher, making the decision to not go even better. Sadly, I don't think any relevant statistics exist.

k__ 9y ago

This is really sad. I had bad luck studying computer science in the short time when there was tuition fees of 500€ per semester in Germany. It "only" cost me 3500€, which I paid back 1 year after. Didn't have to take any loans, because I worked as a developer on the side, while studying. Some of my friends were less lucky, they couldn't work on the side and had to take a loan. We have some subsidised loans here in Germany, where you only have to pay back half of it and only to a maximum of 10k€, but that's still rather much for many people, especially if their entry jobs don't pay that well. So they starting their "working life" and already got 10 years of debt.

dkarapetyan 9y ago

So don't go into student debt. Go to your local community college and then transfer somewhere affordable. I've now worked with grads from all over the place. I honestly can't tell the difference.

nunez 9y ago
There are a LOT of factors that you're not considering with that statement. For some (many?), the decision isn't that easy. Here's why: - Are you going to college to escape a really bad situation at home? - Are you going to college because your local community college isn't good at preparing you for a four-year college and has a bad/incompatible atmosphere? - Are you going to college because you'll be ostracized by your family (that you love very much) if you don't, even if you (or they) can't afford it? - Are you going to college because the study that you feel is your life calling can only properly begin at a reputable four year?
- dkarapetyan 9y ago
  I don't get what point you are making. How is any of what you said reason to go into huge debt?
  - wmichelin 9y ago
    Agreed, sounds like this person is trying to make excuses for themselves or something.
  - nunez 9y ago
    because sometimes you do whatever you can to get out of a bad situation, even if it means taking on student loan debt but clearly you've never had to deal with that; be fortunate for that
- wmichelin 9y ago
  At the end of the day, you will be the one in debt. It's your own stupid fault for giving into those pressures if they're exerted upon you. You shouldn't buy something you can't afford, no matter what. If you choose to, you are responsible for the consequences. That's all.

cryoshon 9y ago

glad to see this getting attention. there was one thing which i'll take issue with, which is in figure 5. nobody that i know who has student loans can afford to pay that much per year, meaning that this figure is extremely optimistic and likely not representative of the median case-- which is fine because it still gets the point of the authors across, but it's missing some context. anecdotally, 7 years out of college has left me and a few people i know with scarcely 2k shaved from our principles, with the rest lost to paying off the 6.5% interest. people don't have incomes which rise quickly enough to make headway against the loans. thankfully the article comments about the deferred retirements savings caused by student loan burden. this is a hugely important issue that requires a jubilee or some other radical measure... but will likely not have one barring major societal disruption which the current trajectory is barreling us towards.

delazeur 9y ago
> nobody that i know who has student loans can afford to pay that much per year I think that's cumulative cost, not annual cost. Hard to say though; it's not a very good figure.

grecy 9y ago

It is really sad that the wealthiest country in the world shackles it's young people with crippling debt if they attempt to get an education. My load from Australia is interest free, I only have to pay it back at a very low rate when I earn over $45k per year, and it was $20k (TOTAL!) for a 5 year Bachelor of Software Engineering.

owengriffiths 9y ago
College students will have to pay the cost of their college educations one way or another. Either with loan repayments or higher taxes. The problem is how much people in the US spend on getting a college education, not the funding mechanism. (ie living away from home, rather than living at home like most of us do in Aus).
- surfmike 9y ago
  Having it tied to income definitely makes it less crippling for those who have trouble in the job market after college. Like most grads after 2008 in the US for example, who got unlucky.
- boomboomsubban 9y ago
  >College students will have to pay the cost of their college educations one way or another. Either with loan repayments or higher taxes. If I'm buying a hundred thousand tuitions, presumably I can negotiate a lower price far easier than if I'm buying one. Additionally, even if their total monthly income was the same, not being in a large amount of debt could be a positive. Many would feel more comfortable taking a loan to start a business or build a house, and it would be easier to justify spending without needing to worry about debt interest.
- nandemo 9y ago
  Perhaps you meant "e.g." ("for example") and not "i.e." ("that is")? Because I'm pretty sure boarding costs aren't the only issue. I don't know about Australia, but tuition in Japan is much more reasonable than in the US.
Y7ZCQtNo39 9y ago

CryoLogic 9y ago

Why not make it so instead of loans, the university gives you 4 years of free school and than gets say 10% of your next 4 years of income? Than the school has incentives to improve the academics in your favor.

madengr 9y ago
If that's the case you would only need to work 1 hour a day to pay your way through school, while at school. They would need to take 10% of your income for a lot longer than 4 years.

BJanecke 9y ago

Doesn't all debt reduce lifetime wealth?