What the hell were the couple in example #1 doing with their $200K income? If they wanted to pay off their debt in 10 years, they'd need about $2800 a month, assuming the rate was the full 12% the whole time.
I agree with a lot of the article, but a couple of idiots who pissed away the fruits of their education on too many vacations and fancy cars (obviously not any real investments, otherwise they could have refinanced their student debt) don't give a very good example.
I was thinking the exact same thing when I read that.
Sadly I know _many_ people that make six figures and complain about things like student debt and credit card debt. One guy claimed he was lower middle class (he was making $110k at the time, with only a wife, who didn't work, to support). If $110k is lower middle class, then I must be in poverty.
It's like the idea that they can lower their living standard slightly to achieve financial goals just doesn't occur to some people. People that make good money and manage it poorly garner zero sympathy from me.
I don't know about "lower middle class", but in Manhattan and San Francisco, $110k is definitely "bachelor-class". You might not be able to comfortably raise a child, commute from Jersey to Manhattan, and make student loan payments on $110k/yr.
Then you say, "well then don't live in Manhattan", which is probably true-but-not-obvious, but also implies you're going to take a wage cut to work somewhere else. And not everyone is as geographically mobile as a 25 year old hacker.
I should have qualified and said this was Kansas City. $110k definitely can raise a family there. It's not exactly the carefree level of money, but when the average house costs $185k, it's no where near 'lower middle class'.
You can easily commute from Jersey to Manhattan, make student loan payments and raise a child on $110k/yr. I did the first two on only $20,000/year (though I admit, my loans were a lot more sensible than those of the couple described in this article).
You could also live on $110k manhattan if you are willing to live north of 111th st. A 2br 2bath up there ran $2100/month back during the bubble (less now).
I was offered a job at Bloomberg in 2003, at a significantly better starting than $110k/yr, moving from Ann Arbor, MI. I did this math. So, three things:
(1) I'll spare you yet another hypothetical family budget monthly itemization.
(2) I'll concede that it is clearly possible to raise a family in New York on $110k/yr.
(3) I'll assert again that it is not comfortable to raise a family in New York on $110k/yr, nor does it appear to be easy.
There are obviously a lot of sacrifices you can make to make the budget work out, but in a family scenario, not all sacrifices are tenable.
$110k is ~$6600/mo net working Manhattan, living in Jersey.
Aggressively assume $2500/mo to rent a house (forget buying). Assume part-time child care @ $900, commute @ $400, lowball utilities @ $500 (I pay more than that in Chicago), food @ $1000, car insurance for one car @ $200, and dependent health care at $150.
At $110k/yr, you're now less than $1000/mo over break-even. Lose an alternator in the car, you're in the red. Fill 3 cavities, you're in the red. Fly to Tucson for a funeral, you're in the red.
Can you do it? Yes. But I'm not going to call it easy.
You can rent a 3bdrm apt for $1500 in JC, easily enough space for a family of 3-4. Utilities, figure $100-200/month. (Savings of $1200 over your numbers). Maybe you want a really big house?
The apartments I'm talking about are close to the path, so forget the car (save $200). Path+subway every single day is $185/month (save $215), for a 23 min commute.
So using your numbers, you are $1000 over break-even. In reality, you are closer to $2500 over break-even. How is this uncomfortable?
I mostly agree with you, but isn't $1500 a bit of an underestimate? Jersey City isn't that cheap; $1500 is definitely impossible in Newport or near Exchange Place, and I thought that even around Journal Square it would cost more than $1500 a month for a three bedroom apartment.
How do you spend $1000 a month on food? That's $10 a meal! You can't spend $10 a meal even if you eat half a pound of Safeway steak for breakfast, lunch and dinner.
At the other end of the spectrum, dry rice is 33¢ a pound, beans and corn are 50¢ a pound, vegetable oil is $1.29 a liter; multivitamins, water and gas are basically free. The standard corn/beans/rice diet costs about 10¢ per pound of cooked food, which is a meal for four people, 1% of what you were spending.
$1000 isn't 10/meal/person for a family of 4; it's $8. A meal at McDonalds --- where allegedly lower-middle class people eat because it's cheap --- is $5-$6 in a major metro area.
There are obviously meals we can spec here that cost nowhere close to $8/person. But:
* A plurality of families in America don't cook every night; that doesn't make them clueless crypto-rich people, it makes them normal. If you don't cook, your meal cost goes up.
* A couple contemplating a family life together could reasonably break up over the issue of feeding itself for 5-10 years off bulk dry rice, beans, and corn.
Yes, if you eat every meal at restaurants, you can spend $1000 a month on food. Even if it's McDonald's. That's why only extremely rich people eat every meal at restaurants.
$1000 isn't $10/meal/person; it's $10/meal.
If a family is concerned about the corn/beans/rice diet, which costs like US$40/month according to my "other end of the spectrum" figures, then maybe they could splurge and add some oatmeal, some greens, some fruit and vegetables, milk, herbs and spices, spaghetti with sauce, peanut butter sandwiches, ramen, the occasional chicken. That could raise the price to US$100/month or even higher. But it isn't going to bring it close to US$1000/month.
US$2.50 of raw shoulder steak is therefore half a pound of steak; you'll be grossly obese and get gout by 35 if you eat that every meal. I don't know if that includes delivery, but it's on their delivery site. On the same site, boneless chicken breasts cost the same amount but drumsticks are a quarter of that, and that's before the discount for buying with your Albertson's Preferred Card, or buying on sale, or buying in bulk at Costco instead of Albertson's. I can't find any packages of chicken breasts there that cost $9.00 for a pound.
You live in Argentina and you don't know how to cook beef?
What can you do with chuck, kragen? You can, if you are among the 4% of people in the US with the means and expertise, grind it into hamburger or chili meat. You can, if you are among the 10% with a crock pot, make pot roast.
Otherwise, you can cube it and braise it for a stew, and that's about it. Most families can't do much with $20 worth of chuck.
A package of chicken breasts --- enough for 4 people (in my house, 3-4 breasts) is between 1.5 and 2 pounds.
I'm not sure your evidence is rebutting my argument.
Okay, so as not to be a jackass, I will stipulate:
- You can spend more than US$1000 a month feeding a family of four on 100% Safeway (or Albertsons) steak. I was wrong about that. It looks like your bill could go up to US$2000.
- I definitely don't know how to cook beef. In fact, I'm mostly vegetarian. I didn't move to Argentina for the steak. I'm surprised to learn that chuck steak is inedible without special equipment, except in a stew.
- Enough pre-deboned chicken breasts to feed four people for a meal also costs US$10, which is similarly US$1000 a month, if you eat something that pricey three meals a day.
I still want to know how you spend US$1000 a month on food without factoring in restaurants. Even approximately? I'm sure you're not eating a 100% meat diet, are you?
Food @ $1000?! Maybe if you eat out every day...Most American families would laugh at this. If you cook at home and plan properly, you can easily feed a family on far less.
We almost never eat out (we like to cook). I have two kids. Our monthly isn't $1000, but it will easily shoot well over $500 if we don't keep meal-plan-discipline. I totally believe a typical middle class family comes close to $1000/mo on food and food-related expenses.
$1000 over break-even would be wonderful. I'm nowhere near that point and yet I've saved more than enough to buy a few new alternators or flights to Tucson.
Yes. If you have kids, which I think you just acknowledged you don't, every thought you have about budgeting and your comfort levels are going to change.
Median household income income in the US 48,000 USD (2006).
Let's say you get to keep 1/2 of the 60,000 per year over that for rent. That's easily 2,500 extra rent to cover living close to Manhattan / San Francisco over the national average and you probably don't need a car. The secret is to avoid Starbucks and other expensive things that are not part of the normal middle class lifestyle but seem so important to yuppies.
That's a gross oversimplification. Drink a $5 cup of Starbucks every working day, and you've added $100 to your budget. Cut that expense; congratulations, you've saved 3% of your college loan payment. (Can you tell I've had this argument with Erin before?)
The big-ticket items I don't trust you're considering:
* Child care will cost between $1000-$2000/month.
* Commute will add $300-$500; parking $500-$900 (plus car payments --- $250-$400, plus car upkeep --- $100, plus gas, $150).
I know that people do live on $50k/yr, even near major metro areas. But I also know that 3 fillings at a dentist for my 7 year old cost over $1000, so I don't know how people do it on 50k/yr. I don't know, but I am pretty sure, that it isn't comfortable.
Granted, I'm 25 and live in a college town in the midwest. My share of the rent is $255/mo (live with g/f). I spend $115/mo commuting. My car is paid for. My high deductible insurance is $60/mo. I spend about $220/mo on groceries and another couple hundred eating out and entertaining myself. Of course I have no children.
I'm in no way saying everyone should live like me, but I'm quite content living so cheaply. It's not because I have to (I make about $60k/yr) but the vast majority of it goes towards 'vacations' of 6 months or so between jobs (sometimes that involves traveling). I could easily afford a mortgage if I was willing to be tied down, but I'd rather not be. I tend to work for 6-12 months and then take that much time off. The rest of it goes towards my Roth IRA and savings.
I live on 12k a year in one of the richest counties in the nation. It's easy. You know that stuff you think you want? You don't actually want it, you want the feelings associated with buying and showing things off.
Sit down sometime and take stock of the things you actually use and derive enjoyment from on a daily basis and you'll be sitting there with a very tiny and cheap list.
This is easier now than it used to be. Broadband internet is unlimited entertainment for $20 a month.
Yeah, living in a hurricane prone area last fall made me examine my 'list' as you call it. I thought to myself: "If my apartment were obliterated and I could only take what would fit in my car (an Aveo), what would it be?"
In the end my list was: My girlfriend, my cat, a week of clothes, my computer, my magic cards, and a couple books.
All the rest of it is just stuff that takes up space.
Once you realize what really matters, you start to question purchases. For a while I thought I really wanted to start a DVD collection, but then I realized it wouldn't be something I'd save from a burning building, so what was the point in having it? Even if the cost of the DVD is only about what two movie tickets cost, at least you don't have to store the movie tickets.
Yes, as a matter of fact $100 per month is a lot of money. Start saving even a little bit now and you'll be surprised at how it adds up. Your college loan payment is so huge that even 3% of it would have a big effect.
By the way, my dentist charges less than $100 per filling. Does the nitrous oxide cost an extra $700? (Ah, I miss getting fillings as a kid.)
It is infinitely harder to find a tenable pediatric densist than it is to find someone to fix your own teeth. It's so far apart that they aren't even the same problem. And so, I suspect, childrens dental work costs quite a bit more.
If you have a pediatric dental bill that gets a little bit higher than that, it might be worthwhile flying the kid to Argentina to get the work done. The dentists here are, by and large, better than in the US, the culture in general is a lot more tolerant of kids, the prices are a lot lower, and you get to travel to Argentina. And some of the dentists speak English.
I think Costa Rica is a more popular dental tourism destination.
You might already have some vacation time, it doesn't necessarily take a week, and it would be more worthwhile if you were talking about more than just a single filling.
It's really not that bad if you pay for dental insurance. I do for both of my kids and it's not nearly that expensive.
Plus you make a good point on why people should avoid junk food and exercise better hygiene, and teach they're children to do so as well (I know that's not always the case, but I bet studies show it is a huge majority of the time).
2 kids, same diet, same hygiene regime; one flawless set of teeth, one mouth full of fillings. (In fact, the bad teeth get even more care than the good teeth).
Dental insurance is a bad deal. It mostly involves paying in advance for dental work, at a premium. Note that routine dental work is not something that "insures" well; you can't buy cost-effective insurance for something everyone knows is going to happen.
I know of at least one working-class friend in the Manhattan area that has raised a family and sent a kid to college (with another one going soon) and he's making around $55,000 a year in a good year (being a plumber). People need to start being more realistic about what it takes to live a happy and good life. $110k is a good chunk of change no matter where you are in the world, there is no other way about it.
The lawyer mentioned was clearly a dope. The story said he accepted a loan for over $100K without knowing what the interest rate was or who he was borrowing from. Sure, they might have pressured him (like car dealerships do), but you'd have to be moron to get suckered that bad.
The interest rate was pretty good, only varying up to 9%. I'm not a fan of variable-rate loans but he seems to have come out on the good end of this one.
Yeah, but college didn't teach them about basic finance!!! Clearly its not their fault.
On a more serious note: It would be nice if some finance education was mandatory. Ex: there is no good reason for having any credit card debt and yet people still have tons. It shows that they don't know how to manage their income even if they have lots to go around.
Uh, even for two people with six-figure salaries --- and speaking from experience here --- two thousand eight hundred dollars a month is a shitload of money. It's a second full-sized house in a nice neighborhood, or the rent on two apartments, or (wait for it) seven BMW 315i car payments.
Yes it's a lot of money, but it also leaves them with a lot of money left every month. I don't know exactly what your net income in CA on 200k is (and if they filed jointly, etc), but they should take home at least 10k a month.
They still have 7k a month to live on. I don't see the problem.
Assume they're living in a house and they have one child. Then:
$2800 for loans.
$3500 for mortage and escrow.
$1300 for child care (both work).
$1000 for food and day-to-day living expenses.
$1000 for utilities, Internet, services and recurring expenses --- parking, commute, health care copay and (with most employers) dependent coverage, etc.
I get $9600. Survivable? Of course. You can clearly survive in America with a $2800/mo student loan burden offset by a $200k/yr income. But:
* It's not "comfortable"; for instance, they aren't putting away money to put their kid in college.
* It's not resilient; they're fucked as soon as one of them loses their job.
* It's not flexible; for instance, they might literally not be able to afford to have a second kid.
Now, they don't have kids, I get that. But the moral of the story was, their student loan debt load was so high they couldn't stay married. They're smart enough to make 200k/yr, they're smart enough to do this math.
Here's the problem. Why do they need a 3500 mortgage? Why should they be entitled to a house that expensive if they took in that kind of law school debt? Let's say you knock off 1500 of that and just pay rent. That's what my wife and I did and she only has about 400 a month in loan payments. We didn't have kids but let's just leave it there and put it in savings or pay off the loans faster. Let's even leave the 2000 in other expenses. That leaves you at 2800 + 2000 + 2000 = 6800. 8100 if you factor in rainy day savings. You should be taking home more than 10k a month at that income range, even in California with its crappy taxes.
It's doable, more than doable. I hate being judgmental or assuming more than I know from their situation but these people just reek of getting overextended and not being able to apply any discipline in their lives.
Then again, they're both law students and didn't read the fine print. Would you really trust a lawyer that did that? I wouldn't.
I appreciate your breakdown, and your post below about how its harder to rent with a family.
I still think it's ridiculous. I'm not going to go into a point by point rundown because it would take a lot of space and fork the argument several times, but basically I feel that if you ran these numbers by most Americans they would first laugh out loud, then get a little angry.
You seem to think access to top schools and a luxurious lifestyle are prerequisites for a marriage. Empirically, this is false.
That's looking at this situation WITH children. Once you take the children out, as was true with the original case, it gets even more ridiculous. They no longer have such a case for a mortgage and even if they do keep it, they can put away about 1500 a month by not feeding and babysitting a kid.
Let's you and I be clear: I agree with you that 2.8k/mo is not a dealbreaking debt load for a couple with a joint income of 200k. I'm just suggesting that, on the story's own terms, it clearly could be: their marriage could have easily broken up because that (large) amount of debt was incompatible with their life plan.
No, but if both of them want kids, it will allow them to find a partner that isn't saddled with $1600/mo in college loans. As a partnership, breaking up potentially cuts their debt load in half.
No, but if both of them want kids, it will allow them to find a partner that isn't saddled with $1600/mo in college loans. As a partnership, breaking up potentially cuts their debt load in half.
This is silly. $200K/year minus $50K/year for loan payments ($34K/year + tax) is $150K/year. The median household income in the US is $50K/year (2007). $150K is 94th percentile; these people are not only not scraping by, but are doing better than 94% of Americans even after debt.
Tom Wolfe's "Bonfire of the Vanities" (Going broke on a million a year), p.137
"One breath of scandal, and not only would the Giscard scheme collapse but his very career would be finished! And what would he do then? I’m already going broke on a million a year!
The appalling figures came popping up into his brain. Last year his income had been $980,000. But he had to pay out $21,000 a month for the $1.8 million loan he had to take out to buy the apartment…
Of the $560,000 remaining of his income last year, $44,400 was required for the apartment’s monthly maintenance fee… $18,000 for heat, utilities, insurance and repairs, $6,000 for lawn and hedge cutting, $8,000 for taxes.
Entertaining at home and in restaurants had come to $37,000. This was a modest sum compared to what other people spent."
Another perspective:
UrbanBaby is an anonymous message board frequented by some typical New York UES/UWS mothers. Here they talk about not being afford private school on $400k/yr
First off they started at over 200k/year and one consulted on the side so they where probably into 300k/year fairly quickly. With 200k in student debt you should not buy a house until it's paid down. Rent a nice place for 2500$ / month in 1995 and in 3 years that's down to 160k. This is normal for most people starting out. My guess is they where trying to keep up with the jonzes and living way above their means.
I don't understand your math here. In 3 years, they reduce their debt to 160k. They can't buy a house until their debt is basically 0. How many years from now do they have to wait to raise children in a house?
Again, they didn't die. They just broke up. And $2800/mo is a shitload of money, however you want to rationalize it.
My point was that they could comfortably go from 2,000/mo in interest down to under 1,600/month in three years. Interest is API / 12 per month so principle gives (1 + API / 1200) ^12 return per year. (1.01)^12 = 12.8% that's after taxes and powerful. They should also be making more money over time even as their debt is less of a problem and you feel good that debt is shrinking fast. Which should help the psychological situation.
Using 12% an extra 1000 down saves them 10$ in next month and every month after that it keeps compounding. At 1000$ per month over interest you pay down 12,700 in principle in one year (assuming you don't reduce your payment as interest drops). In 3 years they are saving 430$ / month, but assume they roll that savings into paying down principle in a ~9 years it's all payed off.
But, they don't need to wait that long, they just need to find the right cushion so they feel comfortable taking on more debt. Pay down 82k (saving 820/month) in 5 years and the world looks like a brighter place, your making more money, and buying a house might be a good idea. Don't want to wait that long, fine share a 1 bedroom, drive a used Honda civic etc and and all that debt just about GONE in 3 years.
I live in CA and am struggling at just under 6 figures. Childcare and Mortgage on an (average 500K) home is the majority of my salary. Here is the problem. With over 80% of my net going to living expenses, there is no extra 2800 to go to school loans.
Thank heavens I have no loans, just have to pay my wife's off....
Wouldn't you say that a large part of a mortgage payment is actually an investment? If you were faced with large student loan payments, you could just decide to rent rather than take on a huge investment.
I'm wondering if you had a straight face on when you said "a large part of the mortgage payment is an investment". Either way: if they want to build a family, the rent vs. mortgage decision isn't going to change the equation much. Again, assume they have a kid. They have to factor in:
* Commute distance, which will determine how often they actually see their children.
* Lease security; it is extremely traumatic to move a school-age child to a new school district, or even just a new school.
* School quality: the places with the best rental stock are not necessarily places with acceptable public school, or accessible child care.
Again: the article's claim isn't that a couple can't survive on 200k. It's that they couldn't stay married. I can see reasons why.
2) education has become too expensive (implicitly stated)
3) the "hoax" is that of how our credit/debt system works, not about the collegiate system
Already people on this thread are jumping the gun and stating that college sucks and you don't need it. But this is a subjective view and should be taken as such. The only fact that I can get from this article is that college is becoming a financial burden - not that the education obtained is worthless.
There needs to be a way to make education accessible to all. Instead, the cost of getting an education is becoming yet another factor in further dividing the wealthy from the debt-laden.
I think the problem is with those 18% loans (covered by your 3rd point, I think). What the hell? Who pays that kind of interest rate?
The article states: A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college.
I would say that there is likely to be a strong correlation between being foolish enough to take an 18% student loan and getting a low-paid job later (taking on that kind of loan shows a staggering lack of common sense).
Seems to me that that's the only problem there. People should not be allowed to turn that kind of profit on student loans of all things. If there's one kind of loan that should be government-sponsored, this is it.
For the record, in the UK, student loans come in at about 2.5%.
Your quote from the article highlights yet another fallacy - that if you are educated you will make more money. This is marketing at its worst.
It's because of this reasoning I'm surrounded by people who studied CS as a major and learned Java because it was projected to pay well (hint hint about the age level of developers I'm working with lately). The result is that I fix the mistakes of people who possess coding skills that I wouldn't even qualify as AP high school level. My point here is to highlight the idea of choosing an education that compels you to develop yourself into a "somebody" instead of being an "anybody".
Education is polish for the mind. It's best used towards developing yourself as an individual. Unfortunately it has devolved into a tool to charm money out of the system.
Most student loans backed by the government have pretty decent interest rates in the US, too. However some people either can't get enough in government-backed loans or fail to qualify or are stupid.. or something.. and so they hit up the private lenders which prey on them something terrible. I never went private so I'm not really sure, but I suppose another reason to go with private loans is so you can spend the money on things much more disconnected from your education costs - like a car. I seem to remember the government loans being pretty tightly tied to the school and thus it wasn't like I could borrow more than the cost of school without going outside the government-backed loans. (But I could be wrong.)
My girlfriend has some student loans that made me inhale sharply through my teeth when she described them to me.
Her and her family are not good at finance or math, and they got swept into the popular way of looking at college in America: Get into school, take loans, finish school, pay off loans.
That was all true for a long time, but interest rates have risen sharply for loans in the last 5 years, and the value of a degree (especially a liberal arts degree) has fallen.
I'm not making excuses for them, I'm just offering a data point. My feeling is that we're about to see a shift in the popular view of college, but these views always lag the reality. Because of this lag, newly graduating students are going to have it worst of all.
I would argue that, to some degree (har har), it is still accessible to "most." Maybe not "all," but I think of college as a luxury item. The formal education (in the US) that is guaranteed to everyone ends with high school. Why should it extend indefinitely? And why must college be considered a possibility immediately after high school? IMO, we need to insert a cultural cue that hints that it is okay to graduation high school, work a bit, save up some money, and then hit up college in a couple years when you can pay for it. It'd be a decent compromise and might make the ones who take the leap appreciate it even more.
It should extend to all because we all benefit from a more educated population. Better educated people less likely to elect another Bush, for one, but they're also more likely to end up doing high value jobs, rather than working in a McJob (which, while an honourable duty, isn't exactly on the same level as working for a start-up or a biotechnology firm).
Allowing people the opportunity to reach their full potential, no matter where they started from, adds value to our society. Intelligence matters a lot in how far you can go, but, for most people, so does education.
..but someone has to end up working at McDonald's - and I think it'd probably be better if that person hadn't wasted $80k getting a degree they will never use in a subject they may not even like or really understand and have almost no hope of paying back the loan. We can't have exclusively high paying jobs and expect the economy to survive. Not everyone is cut out for intellectual work that requires a degree nor does everyone see the economic advantage. For instance, today I had to get a quote from a plumber. I doubt he went to college but he's making a damn good living doing something he's good at and providing a service I (and the rest of society) need, want, and will pay for.
You said: I think of college as a luxury item. The formal education (in the US) that is guaranteed to everyone ends with high school. Why should it extend indefinitely?
I said: It should extend to all because we all benefit from a more educated population.
Now you say: but someone has to end up working at McDonald's - and I think it'd probably be better if that person hadn't wasted $80k getting a degree they will never use in a subject they may not even like or really understand and have almost no hope of paying back the loan.
I think you're arguing against a strawman. I didn't say people should be shoved into university whether they want it or not. I said people should all have the opportunity to go there, and in a way that won't bankrupt them.
College costs should not be the device by which we filter university admissions. University entrance exams and interviews are a much better tool for that job.
I'm reminded of (Good) Will Hunting's zing to some jerk in a bar, right after calling him out (in a pretty spectacular way) for plagiarizing:
"See, the sad thing about a guy like you is in fifty years you're going start doing some thinking of your own, and you're gonna come up with the fact that there are two certainties in life. One, don't do that. And two, you dropped a hundred and fifty grand on a fucking education you coulda got a dollar fifty in late charges at the public library."
"Yeah, but I will have a degree," he says in return.
It's an open question whether the markets in general (i.e. not just startups, tech, etc.) will get over the apparent value baked into a college degree / GPA, and start worrying about what kids can do, what they know, and how they think.
the couple was $194,000 in debt. each landed a six-figure job. interest accruing at up to 12% a year.
"the pretax median household income in 2007 was $50,233," they where both making twice that in 1995. Even 12% of 200k = 24k/year should be easy when the couple is making over 200k/year. OMG, they only get to live off 3 times the median household income after graduation how they must have suffered.
Granted it would nice to have zero debt, but I suspect their real problems had little to do with debt.
I wonder what the effect on the economy would be if parents or the government gave kids a choice - you can have 4 years of college loans or the amount of 4 years in tuition as seed funding for your start-up.
Note that both were on the law school track, and in fact both made it to law school. If this was their intention all along, taking, say, an engineering degree would have been pointless - you pay even more in tuition.
Taking out $60,000 in loans to go to law school of all places is not such a bad idea. Your pay after graduation would certainly make it worthwhile, and they both are making $100K+ a year.
> Majoring in subjects that lead to careers with more job seekers than jobs and taking out student loans is are bad ideas.
Too many people think of college as just career preparation. But an education can be useful during the hours of your life when you are not in the office, too. Someone with a degree in history might not be able to get a job as a historian, but I'll bet you they will be more interesting at parties than someone who majored in accounting, works as an accountant, and spends his idle hours watching cable TV.
By the way, history majors learn all sorts of skills that are useful in other fields; these people synthesize conclusions from large bodies of contradictory facts. If I were hiring intelligence analysts, or investigators, I would look seriously at a historian.
I didn't go to an Ivy, I went to state tech school. My loans were at 4.5% (!) when I started, and the last one was ~7.5%. My initial tuition was $2500/sem, ended at $4500.
Note, that's over an 11 year period, covering bachelor's-PhD. Folks covered undergrad, and I did a lot of research work to cover many semesters of graduate school. My loans are somewhere around $50k total. Each semester's loan usually left me with tuition covered and $5k of spending money.
There are some things about not going to MIT/CMU I'll always feel like I've missed. But there is the other side of the coin :-)
"Accepted into the California Western School of Law, a private San Diego institution, Kellum couldn't swing the $36,000 in annual tuition with financial aid and part-time work."
That choice of a law school was probably crucial in how the story unfolded. That's not a law school with a high return on investment in that local job market.
Article states that he and his wife landed six figure salaries, but graduated with 194k in debt. I think more crucial to how the story unfolded is that they probably didn't live below their means, probably didn't consolidate the loans to a lower rate (they were paying rates at 9%-12%), and probably didn't pay the loan off aggressively.
I wouldn't blame going to college, or college choice for poor financial sense.
I agree with that. Law School numbers put admissions at nearly 50%, and median LSAT is around 153 which is about better than 60% for LSAT test takers. Also U.S.NEWS ranks it at 400. Also their pass rate for the California bar is 6% lower than the state average. Those are all horrible numbers.
I was considering law for a while, and have done a little research into it. Basically law is a numbers game. Schools only care about g.p.a and LSAT scores. Law firms only care about where you went to school and your g.p.a if you went to a bad school. And the firms who care the most about your school's name also pay the most. So the difference in salaries from private law firms at a top ranked law school and a bottom ranked school can be as high as 100k.
Sure there are loan repayment programs at law schools for people who go into public service, but again it seems like the top schools are able to forgive the most debt.
So basically, that law school seems like it has a horrible rate of return, and it looks like Kellum was lucky getting 100k+ a year. Also not looking at the terms of the loan was stupid
California Western's February 2008 bar exam passage rate was the second-highest of any law school in the state of California (behind only Stanford University Law School) and its July 2008 bar exam passage rate was approximately 85%.
There is a lot of false propaganda spread about the 'value of college'. That being said, there are ways to reduce the expense and increase the return. Just because a few people make poor college financing decisions, and poor decisions about which school to attend, doesn't make all colleges a bad deal.
In this day and age college is worthless. Its pretty much 4 more years of high school, except this time you are paying $40-160K for it.
The problem is that most college students deceive themselves. They go to school thinking that all those people who graduate and get $80-100K jobs are the norm, when they aren't. So they get into debt to pay for school, because "its an investment" and then when they graduate they find out that instead of $80-100K, they have to settle for a job paying $30K a year.
So you pretty much put off 4 years of salary, 4 years of raises, 4 years of building contacts, 4 years of climbing the corporate ladder, all on the premise that it'll pay off in the long term. But it doesn't.
As long as the person didn't get a job at McDonalds, he'll be making more money after 4 years, than you would as a fresh college grad. And he won't have the huge debt, like you do. And that goes double for a person who majored in liberal arts.
I'm one of the people who thinks there's some worth to being in a place with people who all want to learn. College isn't about money. It's about being open to explore.
I'm in a class about religion, another about creative (physical) design, one about interactive multimedia, one about advanced PHP work. Each semester I'm hoping to learn more about things I don't already know much about.
It's not about the degree. I haven't checked to see if I'm on the "prescribed path" to getting my degree, and I'm avoiding some things I need to graduate because they don't interest me (secondary language, technical writing). I'm in college because I want to discover things and I want to have four years to work on the things that fascinate me.
if you are open to explore, whats stopping you from learning all those things on your own? If you want to learn, you can get some books from the library or hit the net and learn it on your own. You don't need to get into debt up to your eyeballs to achieve that.
You are taking only 12 college credits..do you really think you can't spend 12 hours a week to learn that stuff on your own?
If you are learning on your own, you could have "taken" all your major classes in 1 year. Gotten a job. And then while working, could learn all that "extra" in your spare time, while being debt free.
Off the top of my head: college gives me people to discuss with, parties to go to, a place to live on my own, a DC++ hub for me to access pretty much anything I want to, and a bunch of professors that I can talk to directly and discuss things with. Plus, it's public school, so if I go the four years I leave with no debt.
I'm not going to college just for classes. Partly I'm here for the social environment. I'm also applying to YC, which I'm hoping means I'll get to spend a year or two doing meaningful stuff, then return to college much wiser and certain of what I want to do.
The funny thing is, when it comes to my major I'm nearly all covered. I've been writing for 6 years, designing for 4, I've used Photoshop and Premiere extensively, and I've worked in teams before. So in classes, I spend most of my time talking directly to the professor about things, I get my work out of the way, and the things I do expect to learn won't strictly be my major. (I'm shoddy at designing with images, for instance.)
Damn, my edit disappeared. Apologies for the double post.
The other problem with that is that I wouldn't know where to begin finding a job. I'm not satisfied with much. If I'm not working on my ideas, creating them as I see fit, I'm not happy. So I can't think of many jobs I could take that really would make it worth not going to college.
Unfortunately most people aren't in college to learn, at least in the places I have been. I was the one of a tiny minority who was in the library during the holidays for example, or to research non-class materials of interest. Likewise, few if any others stayed to discuss with the lecturer the finer points of the lecture material - often times there are vast simplifications and sometimes gross errors especially in undergraduate life sciences.
That's a problem at TCNJ, too. It's one of the reasons I'd like to get out and work on a real problem for a little while. However, now that my second semester's begun, I'm in an environment with people who're much more interested in actually learning. Not the classwork so much as just things. My roommate and I are going through a work-out program, I might try and record an album with a kid on my floor, we have tons of debates about game design and writing and all sorts of stuff. And the college environment is useful for a lot of that, for finding people who like learning.
The other thing to remember is that chances are you're in the very slim minority of students who enter college with some sort of focus. As much as I'd like to rail against people who don't know what they want to do by the age of 18, it's pretty common. My friend is entering MIT, and he's extremely bright and I'm sure he'll get a lot out of being in a place with other bright people, but if I were in college with him I'd be just as frustrated at him as I am at the people around me who aren't working towards some great goal.
The problem of finding ultrafocused people is a tough one. I was in a program that assembled artists together for a month, and it was absolutely the greatest month of my life and I'm looking for a system that creates the same focus elsewhere. Dunno if other programs like that exist, sadly. Perhaps that's a problem worth solving as well.
<i>So you pretty much put off 4 years of salary, 4 years of raises, 4 years of building contacts, 4 years of climbing the corporate ladder [...]</i>
While I agree with much of what you say, 4 years in college surely builds contacts (likely of much better quality than otherwise), and you surely get a kick-start in the corporate ladder (if this is fair or not is another matter).
I've not worked with or for anyone I was at college with, nor found a job through them, nor interacted with them professionally in any way. Sure we're good friends an' all, but the networking people think they're going to do in college doesn't really exist.
And I got my first job out of college through a friend who had joined the company a year earlier. He knew me, had a decent sense of my ability from our classes together, and gave me a strong recommendation. Every job since has built off that first one, both technically and relationship-ally.
So that's two competing anecdotes. The number of variables here is enormous, but I'll pick out just one: my college network may be unusually meaningful (career-wise) because I'm still living in the same state that I went to school in.
Being one of the college students who deceived themselves, I have to admit that I could not have put it better myself. Is it my own dumb fault? Yes, it is. I was an adult and like to think that I was smart enough to have made the decision under my own merit. Should I have researched the reality of post-graduation life more? Yes, again. It is very true that they sale you the dream of 80k - had I only known then that college wasn't a requirement for realising the dream, I could have saved 40k...
its not really the student's fault. Its the parents/society's. There is this idea, that if you don't go to college after highschool that you are some sort of loser.
When in reality you can self-teach yourself everything they teach you in college. Take programming for example, is it worth going into debt up to your eyeballs, if you could have learned everything on your own?
I wouldn't say everything- if you get a really good teacher in a really good program, you can learn a lot in a short amount of time from an expert that you may never be able to learn (or it may take a long time to) on your own.
Very good argument - unfortunately, it likely is non-applicable in many (if not most) of the universities in the U.S.
From my personal experience, I found mediocre teachers who primarily seemed to be present for class for attendance - like many of their students. I had hoped that this appearance was superficial, and that in reality they wanted a student to inquire and ask for assistance beyond the covered material, but alas, this was not the case. In reality, my questions were usually greeted with being "irrelevant to the course material and not related to what we were covering" - even when the material was clearly an extension of the course material and was presented by me as a means to engage the teacher and hopefully learn more than how to write a C++ application to parse a txt file...
This said, my Java and ASM teachers were great and did welcome this interaction - but the majority of my professors seemed disinterested (at best) in talking about anything other than the verbatim script out of the book.
But that was just my school - mileage varies.
1. There are things you get in college that make life better outside of salary. If you're too reductionist to understand that, don't respond to me to debate, you already have my pity.
2. Tuition for a good state engineering school: $4500/sem. Average salary (2007, last time I checked) for a graduating computer scientist from the same school: $75k. If you want a good career, college is a great way to get it -- just think for 100 milliseconds past "should I go to college?" and ask "which degree program?"
3. The NY Times front page has a nice little unemployment stat graph today on unemployment rates by degree level.
4. I have friends who spent over $100k to get degrees in fields that barely pay $35k/year. They're brilliant and they love what they're doing -- some studies just don't pay well. For the larger decision, beyond income, enjoying life is pretty relevant. I doubt you'd understand, as you seem to look at school purely as a financial instrument. See point #1.
A lot of people in the comments here are talking about the return on investment of the law-school tuition, but nobody seems to have calculated it.
First, some comparison figures. Warren Buffett expects businesses he buys to return about 4% on capital. The US stock market during the 20th century returned about 10% on capital. A bank loaned me money to buy a house in 2000 at a 6.5% interest rate, before the mortgage bubble; presumably it thought that was a good return on the capital it invested in the loan. But it had some risk that I would default on the loan, which lowers its expected return on capital to something a bit below 6.5%.
This Joel Kellum guy spent US$36 000 a year on a law program, presumably for three years, for a total of US$108 000. Then he got a job that paid him at least US$100 000 per year, instead of the US$57 500 per year of an average college graduate. If we assume for the sake of simplicity that he only went to law school to make money (instead of, say, because of a passion for justice or the Socratic training in logic that are part of a law-school education) and that the difference in earnings is solely due to this legal training — rather than, say, because he was working 80 hours a week, or got very lucky — then his investment was returning at least US$42 500 per year. That's roughly a 42.500/108 = 39% return on investment.
That's not a full NPV analysis, of course, because it neglects the forgone income during his law-school years, the earnings difference he can expect over the years as his lawyer earnings increase at a more rapid pace than an average worker, and the three-year delay between investing his first tuition dollar and landing his junior associate position. Still, it's tough to manipulate those figures to get less than a 20% ROI.
I don't see Joel Kellum gets off complaining about a 39% or even a 20% return on his investment. Better yet, it wasn't even his investment — he borrowed most of it at rates that "have ticked as high as 9%"! Any investor would kill for yearly returns like that, even before you multiply by the leverage. Better still, in student loans, typically the lender shares in much of the downside risk — you don't have to make payments until you get a job, for example.
This is the kind of investment around which Forbes is tossing about phrases such as "consumer fraud" and "trading in half-truths that exaggerate the value of its product"? What is their agenda?
It's also kind of pathetic to see education as merely a means of making more money; but even if you see it in such narrowly self-centered terms, it's an extremely good investment.
The fix is to not go into debt just to go to college. A college education is a luxury - but it's one that can be had at an affordable cost if you're ambitious, work your ass off, and take advantage of every grant, job, research position, etc. you can find. IMO, it's the people who do the leg work to get into those kinds of programs and reduce the cost of their own education that ultimately succeed in the end anyway.
It is extremely difficult to get an undergrad education without going into some debt even if you go to a public instituion. I went to a very cheap state school in a low cost of living area and even with a full scholarship I barely escaped without any debt from simply paying for room and board. I held a part-time job but at $7.50/hr it didn't go that far.
Oh, it's hard, no doubt. I wasn't so smart back then and went to a private school and took out huge loans because my parents told me that was how it was done. (It's all paid for now, though.) My wife was smarter. She went 5 years at a state school with zero debt by working crap fast food jobs, lab assistant, food service, etc. She'd never even owned a car. She had grants and stuff to help her out. By her last year we were married, so my income made it possible to pay cash for the final stretch which a lot of her grants wouldn't cover. So yeah - I'm not saying it's easy - but it can be done.
I am appalled that people could think of education as a luxury. In many Eurpean countries University is free or very cheap. Full educational opportunites for all a countries citizens, as well as comprehensive healthcare, are the hallmarks of a civilized society. Good luck, prosperity and happiness to you all.
Shorter version of my long comment: Forbes is calling college education a fraud because Joel Kellum only gets a 39% yearly return on his "invested" tuition, which he borrowed most of at 9% or less. WTF?
i'm more worried about the other students who come in and think just because they paid a few of their friends to cheat on tests and they got a "degree" it is somehow an entitlement to a life of a high-salary job. most students actually go in with that mindset. "i'll cheat on the tests, i'll slack off, and get the degree. then i'm deserving of a job, because that's what everyone says to do."
There was a time when I felt that way. But somewhere along the line I married a woman who's got a degree in History and Literature. I can see your eyes rolling already. It gets worse: she never even (gasp!) took Calculus.
But the fact is that she's smart. Crazy smart. Quoted by the Supreme Court smart.
And she sees the world through glasses that are very, very different than my own. Our discussions are not about whether X > Y, but whether Y is even a measurable, meaningful value; whether this is the right question to be asking; what X means in a legal sense; what that implies for the how we build policy; and whether we can help people get understand Y.
This morning we argued about Robert Reich's premise of restructuring the economy and whether you could blame stagnant wages at the feet of Microsoft.
Every day that I talk to her I see nuances where I hadn't before. I get smarter.
I'd even go as far as to say I get smarter at a faster rate than I have talking to vast majority of the technical people I've ever interacted with.
count yourself lucky. attractive women who don't spend their lives acting like 3rd graders just because they can are few and far between.
This is also why people join mensa and similar clubs even though it seems kind of stupid to pay to belong to a "smart club". People need a level of interaction similar to their own. I'm sure most of the people on hacker news are frustrated on a daily basis with the 8th grade reading comprehension level (and the level of mental acuity that implies) of those around them and thus come here for a semblance of intelligent interaction.
To be perfectly honest, I don't see why that should matter. Studying history is no less honourable than studying physics. We need both in our world.
A historian obviously isn't going to be making lots of money later in life, but that doesn't make them worthless. A good education system should allow historians to come out of poor backgrounds too, not force everyone int apparently productive degrees. Hard sciences aren't everything in life.
As I see it, the big difference between 'softer' (history, literature, philosophy, ...) and 'harder' (math, physics, ...) subjects is that, as an undergrad, you can 'get by' in softer subjects on very little work, especially if you are reasonably intelligent, whereas in harder subjects if you're not working to at least a certain level, you will do really badly.
However, to be a great historian is no less a task that to be a great physicist. Doing anything well is just as difficult as doing anything else well.
Shutter the bad and mediocre colleges, law schools, and business programs. These diploma mills border on fraud. Most people who think they went to "college" didn't. They were expensively babysat for four years because the job market couldn't figure out what to do with them (and, alas, still can't). The upper-middle tier schools (respectable but not distinguished state schools) shall stay in business but should be half of their current size.
This problem is even more obvious in law school. "California Western School of Law" is not going to provide access to the level of means that most people associate with being a lawyer. These are the schools that law students call TTTs-- third tier toilets-- and the job prospects they provide don't offset the ridiculous debt one takes in order to attend them. A law program loses accreditation if less than 50% of its students fail the bar exam. There are many shitty law schools out there that take on mediocre, doomed students (like, 140 LSAT) and fail many of them in their first year, in order to improve their bar pass rate.
I think it's time to go to an "elitist" European-style system where only qualified students get to go to university and into professional programs, at least with the public schools. Only 5-15% of the population should be getting an academic college education, but it should be free (or very low-cost) for them. No student loans, no parents losing their retirement funds to tuition payments. The other ~85% can go to a private college if they can afford it, as in Europe, but it's not viewed as a universal right.
I'm living in Europe -- Germany to be exact -- but never noticed any "elitist" European-style system for a University degree. So I digged out some numbers. This is hard to translate, so my apologies for bad grammer.
In Germany in 2006, 43,4% of people born in a certain year managed to make the necessary degree to be able go to a higher education system (universities, etc.). This is quite a difference to the 5-15% you assume to be "usual".
Additionally, the majority of universities here are public schools, with (recently introduced) fees of about 1000 Euros per year. This is also quite a difference to your assumption that 85% of students go to a private college.
Additionally, some traditional German qualifications ("Meisterprüfung", for example) are taught in other school forms, that are considered to be a university degree elsewhere.
Looking at the other European countries, the numbers are different, of course. That's party due to the fact that some countries require collage degrees for certain jobs not necessary elsewehere. In Sweden and Finland, for example, nurses seem to need one. In Finland, up to 71% of people born in a certain year seem to start a college education.
For other numbers, please see the fourth table here: http://tinyurl.com/dn22rh. The third column indicates how many percent of people born in a certain year start a higher degree. For example, it was 32% in Belgium according to the 2001 OECD study.
Wow. Those numbers are higher than I thought. My impression was that the percentages who go on to academic (not including vocational) university education was in the teens. This is based on family in Switzerland, but the data is probably stale at this point (1980s).
I should point out that I'm not against a third or half of Americans getting some kind of free higher education. I just think it's a waste for them to have an academic education, when only a minority of jobs require one. Appropriate vocational training would be better.
I think it's time to go to an "elitist" European-style system where only qualified students get to go to university
What system is that? Here in the UK the ex-polys churn out Media Studies grads like there's no tomorrow. You don't even need good A-levels to get in. GMTV did a story the other day on how they're working manual labour jobs now. Now don't get me wrong we need people to do those jobs but we didn't need for them to spend 3 years partying on the taxpayer first.
I agree with a lot of the article, but a couple of idiots who pissed away the fruits of their education on too many vacations and fancy cars (obviously not any real investments, otherwise they could have refinanced their student debt) don't give a very good example.