how do you calculate student loan risk?
February 16, 2010 3:50 PM Subscribe
Potential student loan calculus: how much is too much at what age?
Having just read this post, which addresses the always thorny question of "is a graduate degree worth it?", I'm wondering how the people who did decide to take the financial leap came to their decision.
If you went back to school for a graduate degree--whether it proved "useful" or not--what type of financial/emotional logarithms did you use to assess the risk? Debt load vs. starting salary? Years lost to an underpaid profession vs. years to gain in a profitable new one? Starting late at your current age vs working further into retirement? Passion vs. planning for your financial future?
And was your assessment accurate?
Even if you knew that speech pathology degree would translate to a guaranteed hire, that massive student loan debt must have given you pause.
I would particularly love to hear from those who used the grad degree to change careers.
(Also, I'm specifically not mentioning any grad programs I"m currently considering so as to keep the conversation on rational risk assessment.)
Having just read this post, which addresses the always thorny question of "is a graduate degree worth it?", I'm wondering how the people who did decide to take the financial leap came to their decision.
If you went back to school for a graduate degree--whether it proved "useful" or not--what type of financial/emotional logarithms did you use to assess the risk? Debt load vs. starting salary? Years lost to an underpaid profession vs. years to gain in a profitable new one? Starting late at your current age vs working further into retirement? Passion vs. planning for your financial future?
And was your assessment accurate?
Even if you knew that speech pathology degree would translate to a guaranteed hire, that massive student loan debt must have given you pause.
I would particularly love to hear from those who used the grad degree to change careers.
(Also, I'm specifically not mentioning any grad programs I"m currently considering so as to keep the conversation on rational risk assessment.)
The calculus depends on the type of graduate degree you seek and the prospects for finding employment post-education with which to finance the debt.
Assume you want to go to law school. Are you going to get into a top 10 school? If so, you have a pretty solid chance of getting a decent paying job after law school. Beyond that, not so much.
Variable factors to consider are the cost of living in whatever city you decide to live in, the opportunity cost inherent in taking on debt and dropping out of the workforce for X number of years, the meager budgets on which students subsist, etc.
Essentially, you're asking for us to calculate your return on investment. While this is a worthy way to approach graduate education, and it's one that I think far too few people do, there is some psychic benefit to having accomplished the task of getting a graduate degree. That may be very important to you; it may not.
posted by dfriedman at 4:11 PM on February 16, 2010
Assume you want to go to law school. Are you going to get into a top 10 school? If so, you have a pretty solid chance of getting a decent paying job after law school. Beyond that, not so much.
Variable factors to consider are the cost of living in whatever city you decide to live in, the opportunity cost inherent in taking on debt and dropping out of the workforce for X number of years, the meager budgets on which students subsist, etc.
Essentially, you're asking for us to calculate your return on investment. While this is a worthy way to approach graduate education, and it's one that I think far too few people do, there is some psychic benefit to having accomplished the task of getting a graduate degree. That may be very important to you; it may not.
posted by dfriedman at 4:11 PM on February 16, 2010
For my MS I looked at current wage and the starting wage in my new field with Master's Degree. The difference was about 10,000 a year. After about two years that gap jumps to 17,000 for jobs that require MS and two years or 4 years experience. Then calculate debt, lets say around 25,000 in loans. New salary can pay loans off in 2.5 years while still maintaining living standards (of course that is a very disciplined regimen but good for evaluation). Then there is a significant increase to cover undergraduate loans or house etc. I am 30 so it makes sense as the pay over time (absent the reward of doing something I love) will more than make up for the two years of loans and subsequent years of debt.
Now if you want to get more complex you can make an excel spreadsheet and calculate interest on the loans, etc. as that should play a part. Also the savings or money that you can put into the program will pull down the loans. Are you planning to work, etc is also good to think about. Remember, sometimes you may have the time but sometimes you will be SWAMPED and working may not be an option.
The assessment has been accurate to date but there are lots of variables such as savings, housing, job security, etc.
posted by occidental at 4:22 PM on February 16, 2010
Now if you want to get more complex you can make an excel spreadsheet and calculate interest on the loans, etc. as that should play a part. Also the savings or money that you can put into the program will pull down the loans. Are you planning to work, etc is also good to think about. Remember, sometimes you may have the time but sometimes you will be SWAMPED and working may not be an option.
The assessment has been accurate to date but there are lots of variables such as savings, housing, job security, etc.
posted by occidental at 4:22 PM on February 16, 2010
I would second occidental's advice. Think hard and in specifics about the value of the degree you are getting, and whether it is a good investment.
But along with money, there is personal satisfaction. If going into reasonable, re-payable debt would allow you to pursue a career which may not bring a higher income but which brings a lot of personal satisfaction, that itself has a value. You can just think of it as "paying" for your happiness, much as someone buying a house that they like is paying for that. But you definitely want to be sure that it is still a reasonable debt, that is, one that can be re-paid on the income from that profession.
posted by jb at 4:38 PM on February 16, 2010
But along with money, there is personal satisfaction. If going into reasonable, re-payable debt would allow you to pursue a career which may not bring a higher income but which brings a lot of personal satisfaction, that itself has a value. You can just think of it as "paying" for your happiness, much as someone buying a house that they like is paying for that. But you definitely want to be sure that it is still a reasonable debt, that is, one that can be re-paid on the income from that profession.
posted by jb at 4:38 PM on February 16, 2010
I don't know anyone...not one person...who has become what they would themselves consider "financially successful" at doing something they do not love, that requires of them hard work, over a long period of time.
It just seems terribly unlikely that one can maintain the stamina, sacrifice and commitment required to excel at something long enough to reach the upper salary range of a career which is at odds with one's personal definition of happiness. Regardless of degrees earned. Especially when debt encumbered. Debt spends its days binding your hands while Unhappiness works on your feet.
To my mind, an honest evaluation of the potential for daily happiness is the factor that should be weighted most heavily in whatever equation you come up with.
posted by nickjadlowe at 4:39 PM on February 16, 2010 [2 favorites]
It just seems terribly unlikely that one can maintain the stamina, sacrifice and commitment required to excel at something long enough to reach the upper salary range of a career which is at odds with one's personal definition of happiness. Regardless of degrees earned. Especially when debt encumbered. Debt spends its days binding your hands while Unhappiness works on your feet.
To my mind, an honest evaluation of the potential for daily happiness is the factor that should be weighted most heavily in whatever equation you come up with.
posted by nickjadlowe at 4:39 PM on February 16, 2010 [2 favorites]
I went back for my PhD at 29 after several years out of the industry and a couple of years back in it working my way into a position where I could get PhD funding. For me it was very simple: can I get the job I want without that degree yes/no? No. Therefore I get the degree. I may or may not get a decent post doc at the end of it and I may or may not earn more than what I was before going back to Uni (which was pretty good). But I most definitely will not get a post doc without the degree so there was no option.
But then I want a fairly traditional career in a field with a traditional career progression. It is possible to become a scientist without a PhD but is difficult and takes many years, the PhD was easier. Plus the PhD has taught me exactly the skills I needed to make that step up which being a research associate was never going to do. Other career pathways may not be so straight forward leaving leeway to worry about money.
Also my student loan was already huge and my PhD funding pretty good. So I took a paycut but not a huge one and haven't added significantly to my debt. But even if it doubled my debt and left me destitute I'd still do it because I love what I do and love where my career is going, passion doesn't care about money.
What it comes down to for me is: going to University to become a research scientist has been my goal since I was ten so why balk at the last hurdle?
posted by shelleycat at 5:25 PM on February 16, 2010
But then I want a fairly traditional career in a field with a traditional career progression. It is possible to become a scientist without a PhD but is difficult and takes many years, the PhD was easier. Plus the PhD has taught me exactly the skills I needed to make that step up which being a research associate was never going to do. Other career pathways may not be so straight forward leaving leeway to worry about money.
Also my student loan was already huge and my PhD funding pretty good. So I took a paycut but not a huge one and haven't added significantly to my debt. But even if it doubled my debt and left me destitute I'd still do it because I love what I do and love where my career is going, passion doesn't care about money.
What it comes down to for me is: going to University to become a research scientist has been my goal since I was ten so why balk at the last hurdle?
posted by shelleycat at 5:25 PM on February 16, 2010
Assume you want to go to law school. Are you going to get into a top 10 school? If so, you have a pretty solid chance of getting a decent paying job after law school. Beyond that, not so much.
top ten? in this economy, i'd be nervous at a t10. i have plenty of t6 classmates who are smarter than me and unemployed.
posted by anthropomorphic at 7:41 PM on February 16, 2010
top ten? in this economy, i'd be nervous at a t10. i have plenty of t6 classmates who are smarter than me and unemployed.
posted by anthropomorphic at 7:41 PM on February 16, 2010
The financial calculus wasn't hard for me; I'm in a field where assistantships are thick on the ground, so no student loans necessary. I just wanted to do a job that I love--see nickjadlowe's comment. I had a job that paid pretty well before I made the transition, but I wasn't happy there and have never been happier than I am now.
Beyond MS/ MA, you aren't going to make more money by going to grad school, (depending a bit on your area of study). To me, it's a chance to explore interests and ideas that I wouldn't find in any other place.
posted by _cave at 8:15 PM on February 16, 2010
Beyond MS/ MA, you aren't going to make more money by going to grad school, (depending a bit on your area of study). To me, it's a chance to explore interests and ideas that I wouldn't find in any other place.
posted by _cave at 8:15 PM on February 16, 2010
It does depend on what which field you want to get your terminal degree in (and also, which subfield you study in).
Some/Many fields pay PhD candidates. Whether they pay enough is a different question.
Depending on country, a "student loan" from the government is only given to people who make less than a certain amount - this amount being an average over the entire country. In some parts of the country, the amount is less than poverty level, in other parts of said country, it's a decent 'wage.'
Depending on country, it can be hard to secure a "student loan" from a bank because they don't really exist.
My department (a sciences) demands that PIs pay students CIHR minimums (which are ridiculously under what`s do-able in Vancouver without having roommates or living with relatives) - which are over or just at what the provincial student loan limits cut out at, so no extra money can be had from gov loans.
Again, it depends on your field. A MA could end up giving you a higher lifetime earning potential.
A former lab manager-replacement-while-lab-manager-was-on-materity who did her MSc in the UK managed to get a `student loan`worked out based entirely on how much she was willing to pay per month (about $200 CDN or USC or 100 GBP) and got a chunk amount and is living with it for another 12 years or so. She was happy with the deal.
posted by porpoise at 8:31 PM on February 16, 2010
Some/Many fields pay PhD candidates. Whether they pay enough is a different question.
Depending on country, a "student loan" from the government is only given to people who make less than a certain amount - this amount being an average over the entire country. In some parts of the country, the amount is less than poverty level, in other parts of said country, it's a decent 'wage.'
Depending on country, it can be hard to secure a "student loan" from a bank because they don't really exist.
My department (a sciences) demands that PIs pay students CIHR minimums (which are ridiculously under what`s do-able in Vancouver without having roommates or living with relatives) - which are over or just at what the provincial student loan limits cut out at, so no extra money can be had from gov loans.
Again, it depends on your field. A MA could end up giving you a higher lifetime earning potential.
A former lab manager-replacement-while-lab-manager-was-on-materity who did her MSc in the UK managed to get a `student loan`worked out based entirely on how much she was willing to pay per month (about $200 CDN or USC or 100 GBP) and got a chunk amount and is living with it for another 12 years or so. She was happy with the deal.
posted by porpoise at 8:31 PM on February 16, 2010
Just to add a bit of information/data point - I went into massive debt to get my professional degree (vet). I'm pretty much guaranteed work but the salaries aren't as high as people imagine. What follows is US-specific advice.
What has made my stress SO much less is the Income-Based Repayment Plan for federal student loans. You pay only 15% of your income above 150% of the poverty line for your family size, and the loans are written off after 25 years of payments (10 years if working in the public sector). Spousal income is not taken into account either.
I know 25 years doesn't sound that great, but the Obama administration has recently accounced that under new regulations (supported by both parties) that payments will now be reduced to 10% of your income above 150% of the poverty line and loans will be written off in 20 years.
Obviously the above only applies if you will be getting US federal student loans and taking out quite a big debt, as most smaller debts would likely be paid off before the 20-year maximum period.
posted by peanut butter milkshake at 7:06 AM on February 17, 2010 [2 favorites]
What has made my stress SO much less is the Income-Based Repayment Plan for federal student loans. You pay only 15% of your income above 150% of the poverty line for your family size, and the loans are written off after 25 years of payments (10 years if working in the public sector). Spousal income is not taken into account either.
I know 25 years doesn't sound that great, but the Obama administration has recently accounced that under new regulations (supported by both parties) that payments will now be reduced to 10% of your income above 150% of the poverty line and loans will be written off in 20 years.
Obviously the above only applies if you will be getting US federal student loans and taking out quite a big debt, as most smaller debts would likely be paid off before the 20-year maximum period.
posted by peanut butter milkshake at 7:06 AM on February 17, 2010 [2 favorites]
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No regrets, even though the monthly payments sting (a little).
posted by archivist at 4:06 PM on February 16, 2010