The Domino Effect of Student Loans
from daveramsey.com on 10 Sep 2013
When you were a kid, did you ever take the time to lay out a string of dominos, only to have one topple over before you were ready? All that work for nothing, and you were ready to scream.
That’s a taste of the frustration that student loans can bring into your life. And much like those dominos, a school loan can knock stuff over in your life—and you’ll be left to pick up the pieces.
Here’s a quick breakdown...
The average student loan debt for bachelor’s degrees in America has increased from $15,073 in 1993 to $27,547 in 2011. The approximate amount of outstanding student loan debt is $1.1 trillion, and one in eight borrowers owes 50 grand or more. If you have trouble finding a job after graduating (and 13.3% of newbies are), Sallie Mae will still want to be paid. She’s harder to get rid of than Glenn Close in Fatal Attraction.
Those numbers are just the surface though. Let’s go deeper. When you have a student loan payment, whatever you are paying is money that can’t work for you. It can hinder your ability to buy a house or start a small business. You may even feel queasy about getting married or having kids. It stops you or slows you, and there is too much opportunity in life to be held back like that.
What good is it to graduate from school and take a $35,000 job if you’re $25,000 in the hole from the get-go? It could very well take you 10 years to pay it back, and by the time that happens, a decade of your life has passed.
To put it another way...
Let’s say you have a student loan payment of $350 a month. If you graduate at 22 and spend 10 years paying the loan off, you can finally start investing that payment at 32. If you then invest that $350 per month until age 65, you’ll end up with $1.6 million at 12% growth. Not bad, but far short of the $5 million you would have had if you’d avoided debt and invested that $350 a month starting at age 22. That student loan cost you more than $3.4 million.
The sooner you get yourself out of debt (and student loans are often the biggest part of that), the sooner your situation gets better. You stop forking over interest, you get a big payment out of your life, and you have more money with which to save for emergencies and retirement, have fun, and give to those who are truly in need. Sallie Mae goes from being on your back to out the door.
And when that happens, the dominos really start falling your way.