We Are Drowning in Student Loans. What Can We Do?
Amanda and her husband are both lawyers and have $400,000 in student loans. At what point do they push pause on the student loans when they need a car and the college fund?
QUESTION: Amanda in San Diego and her husband are just starting Baby Step 2. They are both lawyers and have $400,000 in student loans. They have a 10-year-old car and only have $1,000 in their emergency fund. At what point do they push pause on the student loans when they need a car and the college fund?
ANSWER: So at this stage of the game, you’ve paid $200,000 or so to go through law school, not pass the bar, and be a full-time mom. Wow.
Really, what we’re saying is that five years from today, both of you are lawyers and hopefully are making over $200,000 as a pair. That has to be our way out. Otherwise, that rock over your head—that rope is starting to feel like a thread now. Basically, we’re saying until your son gets to preschool age, you are driving this car and you are not doing anything toward his education. When you start making $200,000, $225,000, $250,000 as a pair five years from now, you keep your lifestyle down where it is now. We pay off $400,000 in debt in two, three, four years and then we can talk about—in the meantime, if you have to buy another $2,000 hoopty or something because this one lays down, we can work that in. But we’re not going to be saving for college for this young man until he’s probably eight years old.
Here’s what I’m doing in my head. He’s four, and you start work. Four years of paying $100,000 on student loans. After that, he’s eight and you’re debt-free. That’s how I did that. Your first year you’re working might not be $100,000 down on the student loans, but it will average across the four years because every year you make more, you keep living on $50,000. You keep dumping every dollar you make on the student loans. I think that’s the thing. I think his college savings is delayed, and you driving anything more than a get-by beater of some kind is delayed until we clean this mess up.
If something crops up and someone’s ill or there’s some kind of a bump in the road down through here, you may want to beef up your $1,000 emergency fund a little bit, but you don’t need $25,000 lying in an account right now—not with this mess.
Somewhere listening in our 5 million listeners right now is a 21-year-old young woman who is getting ready to sign up for $200,000 worth of student loan debt to go to law school, because everybody knows that’s the only way to go to law school and everybody knows that lawyers make a lot of money, so what’s the big deal? She can pay it all back. Talk to her for a minute.
The thing you can’t see coming is the look in the eyes of a 1-year-old. You can’t see that coming when you’re 22. You look in that 1-year-old’s eyes, it gives you a whole different set of priorities.
I think you’re going to be fine, but I think you’re on an eight-year plan. That’s what it sounds like to me given the constraints and the situation that you’re facing. That’s how I would live it out if I were in your shoes.
Here’s the other thing. She hasn’t passed the bar yet. She graduated. Not everybody graduates from law school that starts law school. Not everybody who goes to med school and goes $100,000 in debt finishes. As a matter of fact, let me help you with this. Most of them don’t finish. Most people don’t make it. Did you know of the people that attend the average college for undergraduate—the average university for undergraduate nationally—that less than 60% graduate? The average graduation rate is 52%, 54%, 57%. That means almost half of the people that start college—and you know you can’t go to college without a student loan!—do not complete college. What do they get from their education? Debt. That’s all they got. They didn’t get the diploma. They didn’t finish the degree. Almost half the people that go to college don’t finish. Almost half the people that join a university don’t finish. Maybe this is something to think about. Maybe Congress should think about this. This is who you’re loaning money to. Half of them are not going to have “good jobs,” and you’re loaning them money. And they’ve never yet had a job, Congress. Maybe the federally insured student loan program is a really stupid idea. Loaning 17-year-olds money, 50% of which are going to fail at their goal. Wow. Something to think about, America. I think we’ve got a problem.