First of all, if you are earning your undergraduate degree without accumulating any debt, then this discussion is not applicable to you. For those who are currently accumulating debt for a first degree or who are contemplating borrowing money to pay for your first degree, then this discussion is for you.
The following is a basic math example that every individual seeking a college degree should be able to apply to his/her own financial situation.
Let’s begin…
Suppose we project ahead and say that you used some student loans to finance your first degree, that you are now a college graduate, and that you just landed a great job some distance from your hometown. As a result, you are ready to begin living your life as an independent adult, to purchase a professional wardrobe, and to buy a newer, more reliable vehicle. You locate and purchase the desired vehicle and sign a car loan agreement that includes principal and annual percentage rate (APR) interest resulting in a $350/month payment for 48 months (a total obligation of $16,800 that must be repaid within 4 years). Your after-tax salary (net income aka take-home pay) easily covers your monthly expenses such as rent or mortgage, groceries, utilities, credit card balance, various types of insurance, entertainment, and the car loan payment. Everything is going well so far. A few months later you receive notification that it’s time to start repaying your student loans. Suppose that your student loan repayment (including principal and APR interest) is also $350/month for 48 months. Therefore, you are now paying a total of $700/month to service two loans (car loan + student loan). Mathematically-speaking, that is the equivalent of making two car payments per month. Since $700/month for 48 months equals $33,600 in principal and APR interest that must be repaid, this will definitely be an obstacle that will take perseverance to overcome. Unfortunately, you must admit that your priorities have suddenly changed as a result of the student loan repayment commitment.
Suppose that instead of borrowing money via student loans to pay for your first degree, you instead worked your way through school to earn your degree. Earlier, I stated that a loan repayment of $350/month for 48 months equaled a total obligation of $16,800. For the sake of this example, round that number up to $17,000. Now, let’s say that instead of borrowing $17,000 in student loans over the course of a 4-year college degree, you earned at least $17,000 in after-tax net income during that same time period. The question then becomes, “How many hours will I need to work in order to take home at least $17,000 over the span of four years?” If we divide the $17,000 by 4, then you will need to net $4,250 per year to cover the shortfall. If you find a part time job paying $7.50/hour at 15 hours/week times 52 weeks/year and assuming your total tax rate is 20%, then you arrive at a net annual take home income of $4,680 which covers your $4,250 yearly deficit. Therefore, with as little as 15 hours of work per week sustained for 4 years, you can avoid $17,000 in student loan debt. Note that the income earned from a job does not necessarily arrive in time to meet university payment deadlines. Many students address this time-dependent expense problem by working enough hours during the summers to get a head start toward meeting their academic year financial obligations.
Students may say that working will keep them from having a true college experience and cause their grades to suffer. Remember that there are 24 hours in each day and a business workweek is 5 days so working 15 hours per week (an average of just 3 hours per business day) allows plenty of time for classes, studying, sleeping, exercising and of course, the “fun” college experiences. In other words, you will need to employ effective time management skills in order to successfully juggle academics, relationships, work, family, and the college experience. Don’t expect to be able to do everything to the level you desire because we all have to make trade-offs. Prioritize, but be open to switching priorities (at least temporarily) when situations warrant. Realize that consistency is the key in regard to maintaining contact with people who deserve your time as well as to accomplishing the tasks that require your time. Also, when it comes to part time work during college, it is a good idea to connect with like-minded co-worker students who are willing to trade shifts (teamwork) with you thereby providing flexibility when academic course deadlines are approaching. Make sure that you practice unselfishness and reciprocate when requested by your co-workers, even though it may be inconvenient for you to do so. I guarantee that after you start earning your first college graduate level paycheck, you will be glad that you worked the 15 hours per week and avoided the $17,000 in student loan debt repayment.
When discussing student loan debt, some graduates believe that you can just take 8 years instead of 4 years to pay off the student loan debt thereby avoiding a significant change in your post-college lifestyle. While delaying full student loan repayment for 4 more years is certainly possible, that decision fails the accountability test. If you are working full time at a college graduate level salary and you are not experiencing a financial emergency, then there is no advantage gained by delaying repayment of student loan debt. If you extend repayment, it’s likely that other financial desires and obligations will arise during the 8-year repayment period plus you will automatically pay more interest. That’s not good stewardship and is one of the ways people get themselves into a debt spiral that can become financially devastating. When it comes to student loan debt associated with a first degree, it is better to work hard, get pay raises, save money, and sacrifice to payoff first degree student loan debt as soon as possible.
Bottom line: Remember that college is a relatively brief stepping stone to the successful life that you want. Don’t let student loan debt used to finance fun activities diminish the joy of life as a college graduate when working just a few hours a week during college would have allowed you to graduate with minimum debt or perhaps even debt-free.
Since OLA is primarily a leadership organization, it’s important to close this discussion with a leadership issue. Fiscal responsibility of other people’s money is a component of good organizational leadership. A good way to learn how to do that effectively is to practice fiscal responsibility with your own money. Today, politicians are discussing some level of student loan forgiveness. In the event you, or someone you know, receives a certain amount of student loan forgiveness, remember that millions of people worked, saved and sacrificed to pay off their loans without ever receiving student loan forgiveness. Some of them will understandably feel salty toward individuals who get student loan forgiveness. Some of those people may be your friends, family members, co-workers or supervisors. Being considerate of their feelings is also a sign of good leadership.
Note: Young adults ages 17-25, make sure to go to overtonleaders.com and complete your Real College Plan Career Field Interest Survey today!
Herb