Student loans: Lessons learned, choosing a major, and overcoming regrets
In 2009, Kasey O. graduated college with a Bachelor's of Fine Arts in Media Arts & Animation. With the support of her family, friends, school guidance counselors, and high school teachers, she had finally earned a college degree in a field that fulfilled her passion. Kasey was proud, hopeful, and ready to begin her dream career. But unfortunately for Kasey, things weren't exactly what they seemed.
What Kasey didn't know was that she had borrowed nearly $80,000 for her degree. She didn't realize that interest accrued while she was in school either, which came as quite as a surprise. Upon graduation, the interest on Kasey's student loans capitalized, leaving her just under $100,000 in debt. And, even after making over $17,000 in payments over the last three years, Kasey still owes around $95,000.
Kasey's student loan debt remains a hardship to this day, mainly due to the fact that she's never been able to find employment in her field. But, even if she had, it's unlikely that she would be much better off.
“During my final quarter, there was a graduate meeting where they went over the job prospects of the past years' graduates. The average grad in my field was making less than $26,000, nowhere near the $56,000+ mark they put on my degree when I first applied,” says Kasey.
A Surge in Student Loan Debt
Although Kasey's story may seem outrageous, her situation is way more common than many realize. As it currently stands, the average student loan debt is hovering around $27,000. And, even though the costs of higher education are reportedly slowing down, they're still increasing at twice the rate of inflation, making it increasingly difficult for families to keep up. According to the Institute for Colleges Access & Success (TICAS), student loan debt has tripled to $1.1 trillion dollars over the past eight years, with the percentage of 25-year-olds carrying student loan debt rising as well, from 25 percent to 43 percent.
Of course, Kasey knows that her debt load isn't the norm. After all, not everyone is unfortunate enough to owe six figures at the age of 24. Now 28, Kasey blames her (much) higher-than-average student loan debt on the fact that she went to a for-profit school, and that she was young and naïve when she made these life-altering decisions.
“Going to a for-profit school was the biggest mistake of my life, and it'll likely continue to affect me beyond retirement, if I even get to retire,” says Kasey. Since student loans cannot be discharged in bankruptcy, Kasey continues to focus on paying her private student loans first since her federal loans are under Income Based Repayment. Kasey's federal loans will reach forgiveness in 2035. By then, she'll be 50 years old.
Is Six-Figure Student Loan Debt Ever a Good Idea?
Richard C. also borrowed six figures for college, with a starting balance of $107,000 after loan consolidation. For a six-figure price tag, he earned a bachelor's degree from Cornell University and a master's degree from Albany Medical College. Like Kasey, Richard's student loans are also on a multi-decade repayment plan, with the final pay-off date scheduled many years down the road. Also like Kasey, Richard wasn't fully aware how much he was borrowing at the time.
“I realized I spent too much while trying to gather all my separate loans together for my consolidation,” says Richard. “To be perfectly honest, I really didn't have ANY idea that I had amassed six figures in school loans. When I got my MINIMUM monthly payment quote from Nelnet, I couldn't believe what I had done.”
Richard blames his high debt load on a handful of factors that he didn't recognize until it was far too late.
“First off, I would have not gone to Cornell,” says Richard. “A local state school would have sufficed just as well.” He also wishes that he would have made saving a priority during the six years he took off between degrees. “I had six years. If I could have saved 10 grand per year, I wouldn't be in the predicament I'm in now.”
However, Richard's situation isn't hopeless. Since he earned his master's degree as a P.A., or physician's assistant, he now earns a salary of about $115,000 per year. His choice of major, or “saving grace” as he calls it, remains the reason why he doesn't necessarily feel hindered by his enormous debt load. After all, $115,000 is plenty of money to repay his student loans, save, and retire in a reasonable amount of time, according to Richard.
“Making smart decisions has allowed me to save about $115,000 in retirement accounts (403(b) and Roth IRA),” said Richard. “I also have about $30,000 saved in a taxable account as well. I accomplished all this in the past five years by spending wisely and making saving a priority.” And, despite his huge debt load, Richard's family has an after-tax savings rate of around 52 percent.
Kasey and Richard's experiences are full of lessons — some obvious, some not so much. First of all, both stories illustrate the importance of choosing a college major that makes financial sense. Due to changes in technology and the workforce, the advice to “follow your passion” may no longer be advantageous to your career or your financial situation.
Of course, if you want to follow your passion, you still can. But, like Kasey, your passion may end up costing far more than it's worth. According to a recent study from Georgetown University, a degree in fine arts brings in an average starting salary of $30,000. Making matters worse is the fact that unemployment for fine arts majors currently stands at around 12.6 percent. How's that for adding insult to injury?
Another study from Georgetown University reports that the highest-paying college majors are currently in engineering and technology, with the top-paying spots filled by petroleum engineers ($120,000), Pharmacy Pharmaceutical Sciences and Administration ($105,000), and Mathematics and Computer Science ($98,000). Since this study focused solely on careers that can be attained with a bachelor's degree, physician's assistants weren't mentioned. However, Forbes listed the P.A. degree as the “No. 1 Best Master's Degree For Jobs” last year, with a mid-career median pay of $97,000.
But, what about student loan debt? Kasey and Richard both admit that they borrowed way more than they ever understood or planned for. Fortunately, some basic tips have been established by sources that have a would-be student's best interest at heart. One of them, the Project on Student Debt, hopes to “identify cost-effective solutions that expand educational opportunity, protect family financial security, and advance economic competitiveness.”
According to the Project on Student Debt, students need to “look before they leap” when borrowing money for school. Some other tips:
- If you have to borrow money for college, the Project on Student Debt recommends to start with federal student loans, instead of private. “Interest rates on federal loans don't change over time and aren't affected by your credit rating. Federal loans also come with some guaranteed borrower protections in case you're unemployed or have other financial problems after college.”
- Shop around and beware of private student loans in disguise. “Some schools put their own name on private loans, or the loans may have other brand names that make them look safer than they really are. Lenders often offer both federal and private loans, so make sure you know what you're getting before you sign on the line.”
- The Project on Student Debt also suggests that students read all the fine print in order to understand how much they're borrowing and what they're really signing up for. “Get the full terms of what the preferred lender or lenders have to offer before you make any commitment.”
Kasey and Richard also have relevant advice to offer in light of their real-life student loan debt nightmares. According to Richard, the most important thing a future college student can do is to pick a college major that will lead to a well-paying career. “This is the one thing I did correctly and perhaps my saving grace,” says Richard. “One thing people forget is that if they like things like art, they can fulfill that passion through a hobby.”
And while Kasey wishes that she had followed Richard's advice, she's now left without a whole lot of options. She has many regrets and wishes she had taken more time to research her school, tuition costs, and career outcomes. So, what's Kasey's advice? Educate yourself.
“Take the time to explore possibilities and to educate yourself, especially about student loans, for-profit schools and borrowing wisely. Know the difference between federal subsidized and unsubsidized loans,” says Kasey.
Kasey hopes that her story serves as a cautionary tale for students who are ready to sign on the dotted line. If she had the chance to do it all again, she would've taken some time to decide what she really wanted before committing to a lifetime of debt.
“I would have taken several years off from school to learn skills on my own, work various jobs/volunteer to gain experience and to gauge what it is I truly like doing, save money, take the time to research schools (which for-profit schools to avoid), degree programs, and how student loans work,” says Kasey. Unfortunately for Kasey, it's far too late.
How much student loan debt do you still have? What is your plan for paying it off? What advice do you have for would-be college students who need to borrow money to go to school?