Friday, December 01, 2006

Necessary Evil - Student Loans?

How evil is it to take out a student loan? Those following Dave Ramsey's baby steps would say it completely unnecessary to take out student loans. That your degree should either be delayed until you can pay it cash in full or part-time. This makes a lot of sense to not take out student loans to go school because it can be difficult to payback. Often student loans are stretched out 10-20 years.

However there are many cases where it can be next to impossible to achieve higher education without going into debt. Many times an individual lacks parental support for anything. In which case should they take 8 years to finish a bachelor's degree? Is that better than finishing in 4 years and getting potentially a higher paying job? Or a more likely scenario is, it's impossible to work while going to dental, medical, veternarian, law school. Most of these people walk out with a mountain of debt. Yet there is great potential to make a substantially higher salary than a bachelor's and they are supposedly doing something they truly enjoy. Thus is it worth taking out the student loan?

I'm of the camp that education is important and doing what you love is equally important, money or no money. Therefore if you have to take out a loan to do so it's worth it, however the loan money should be spent only on essentials, not on vacations, tvs, etc.

Currently we're financing DH's MBA through a combination of employer reimburstment (only $5k/year, cheapskates), $8500 Stafford loan, and our cash flow. Considering he is going part-time and it still costs $20k/year in tuition, I would say that we are trying out best. We did calculate the returns and it appears that we will be able to pay off the $8500 by the time he graduates easily, potentially in the form of a bonus he'll get when he finishes.

Another reason for the loan is that we expect our incomes to increase over the next three years. So we have the potential to not take out loans, yet we're not there yet. So far we've paid out of pocket most of the costs and still have to garner the reimburstment. Since this is our first student loan for DH, while I had $5k in student loans paid off within 6 months of undergrad, we're pretty nervous. We walked out of undergrad pretty much debt free, and this one year $20k costs more than our tuition for four years at our public undergraduate universities.

I can easily understand how people fall deeply into debt. But is it a necessary evil? Should we have followed the tenets of Dave Ramsey? I don't know. One personal reason for us to do this with loans instead of waiting to save up the cash, which we could have done in probably 1-2 years, is that we want to start a family. We feel the faster this is out of the way, then we can start a family. We'd prefer if our education is done before we start our family because we'll have the time and energy to focus on our kids. So this is a selfish reason for not waiting because we don't want to work full-time, raise kids, and go to school.

What have most people done? What would most people do? I will try to follow this and remember in 3 years to tell everyone what happens to us. If we do borrow 24.5k and if we are able to pay it back immediately.


Trade My Stock Picks said...

A college education is important and should not be passed up just because you have to take out a loan. There are many other ways to find money for college. Check out Free Money for College at Finance-4-Kids.

Living Almost Large said...

I'll wait to cross that bridge when it happens. I am not sure what will happen, if my kids want to go to college or not. Are we huge proponents of college? Yes, but we're not going to force college. Maybe they'll want to go and succeed.

ntbeachnc said...

Companies are only allowed to pay for approximately $5000 a year for each they're not being's all they are allowed. It'd be great if it could be more though.