Thoughts on Too Much College Debt

A couple interesting comments on my post titled How Much College Debt is too Much? recently. First, this one:

I finished a 4 year program and have over $100k of student debt. I started with the assumption that my parents would pay for half, but after a nasty divorce they were unable and unwilling to contribute anything. I asked my grandmother to help me consolidate the loans by taking out a mortgage on her home, which she did after I spent about a year paying upwards of 8% on my loans.

Right now I live like I'm poor. I'm making about $100k in NYC, but I wear 6 year old sneakers and rarely eat more than a PB&J sandwich for dinner. I max out my 401k, IRA, and Roth IRA and will have the student debt paid back in about 3 more years. Until then I feel like a prisoner to it.

I feel like I have a spending problem - besides food, I do not buy anything! Most of my furniture has been found on the street, and I don't have cable or internet. I wear suits all the time because I don't have any casual clothes. But at least I'll be debt free in a few years, and at this savings rate, I'll be a millionaire by 35.

Ok, do I feel sorry for this person or give them the "buck up" speech? Oh well, I don't have to decide since the next commenter did it for me:

stop complaining... I paid for college myself. I took out loans. I graduated in 4 years with 60k in debt. I got a good job that started at 50k and it's been a year and the majority is almost paid off. I also have been stacking money in a 401k and Roth IRA my first year. I learned to be financially responsible, don't give everything to your kids if you can't... they can take on the loans themselves.

This person then goes on in a rather unkind (though a bit needed) manner of telling the first commenter to "buck up."

There are several things to comment on myself regarding these two comments:

1. $100k is a lot of debt to rack up for college. It's going to be worth it for this person, but I'm wondering if he couldn't have gotten the same education at another school for $50k.

2. So either commenter 2 is off in her numbers or she's putting a ton of her salary against debt. To have over a majority of the debt retired in a year when she makes $50k and had $60k in debt seems almost super-human.

3. It's good to see that while these people are paying off their debts, they are also investing/saving to provide for their futures. Good moves!

Comments

[EasyChange]

Seems a little amazing to me as well; getting that much debt paid off that quickly. And in fact, I am surprised by the move by commenter one to get the grandmother to take a mortgage out on her home. It seems amazing to me. I wouldn't dream of asking my grandparents for that.

On the other hand, when I got out of school it was with only about 40k in debt, down to about 33K now (several years later). So perhaps I should have gotten some help earlier. ;)

[Jo]

Yeah, I really don't feel sorry for either commentor. They are both are on track as far as savings and debt reduction. I don't get either how the second commentor could get her debt paid off so fast. Seems to be she may be living almost expense free with someone. The first one may be a prisoner to their debt but they will be living the high life in about 3 years. Sorry I ain't playing no violin music for them!!!

I have had about 40K in college debt when I graduated, and it has remained there mainly becuase I take a small loan out every year for grad school (the rest is paid by scholarships and I'm taking 4 special year program rather than 2 year). This year though I was able to do some creative financing and saved for next summer so I won't have to take so much out or maybe not even at all!! Also, I consolidated what I could and that has helped a ton.

I make about 25K a year and am just starting to get on track for savings and working towards getting a Roth IRA, I have a retirement fund through work but that's not going to do much. I also just paid off my car, and will have that car until it dies or I can afford to get a 'new' one.

[Tight Fisted Miser]

The second commenter is actually quoting the person who commented before the first commenter. They are complaining about the person before the first commenter. I'm not sure if that makes sense but if you read the comments before and after the first commenter you'll see what I'm talking about.

[Brad Chatman]

This all sounds great, but it is a common mistake most people make. The majority of people think that being debt free is the best choice for all circumstances. Refinancing the high interest rate loans with a lower interest rate loan was a good move; however student loan interest is tax deductible. What this girl did was basically cancel out her tax deductible student loan and gave her grandmother a tax deduction on her mortgage. Mean while killing herself to payoff low interest rate loans is crazy. People should look at loan payments as a type of investment; for examples if you have a loan with an APR of 6% then you make 6% a year on the money that you've paid off on that loan. Most people however can get a better return in other markets for instance the stock market and should place their money into these investments instead while paying the minimum payment to their low APR loan. I have recently paid off $6000 worth of high APR credit cards and then soon after received an offer for a 3.9% fixed APR credit line for the life of the balance. I took advantage of this and placed the $21,000 credit line into my investment account where if I only keep it as cash in a money market it’ll return 5.2%. Since I am young and an educated investor I invested the money into ETF’s .You need debt to become rich but you must learn how to manage it and use it correctly. My advice is to understand the power of compounding interest and find a better investment so that this debt works for you instead of you killing yourself to pay it off.