Is Student Loan Debt Worth It?

Not too long ago I asked Tim Caiello to guest post on TGC’s. He has a unique perspective on the question ‘Is Student Loan Debt Worth It’? He successfully avoided any and all student loans in his undergraduate years but is facing the reality of taking on some debt while he attends law school. I first interviewed Tim back in May of 2013 about how he was planning to attend college without any debt at all. Here are some numbers that I found pretty interesting since that time:

Amount of scholarship funds Tim received for his undergraduate degree: Over $100,000.00

Average amount of money spent by Tim during those years: $200 per semester on books/school supplies because he always bought used, borrowed the books he needed, or rented to keep costs as low as possible. He isn’t sure exactly how much he spent on living expenses but it was very low and he did not go into debt.  

Amount of scholarship he has been offered for law school: Over $115,000.00 for three years. Includes a living stipend that will not fully cover living expenses but will help.

 

Here is his take on student loan debt and how to manage it as a student who doesn’t have much but who doesn’t want to be paying back student loans until they are 45:

Debt: A Useful Tool, but A Fearful Master

Life is expensive. Sometimes I feel that my bank account is an injured solider from any war movie, hemorrhaging dollars and cents from car, rent, or insurance inflicted wounds, while I, the money medic, tell it to stay with me, keep breathing, and try to patch things up. Example. My car died a few months ago, and suddenly I was two grand poorer thanks to a transmission rebuild. That money represented weeks and weeks of careful saving and sticking to my budget.  The bright side? I’m able to save and afford these kinds of unexpected costs because I’ve been careful to stay out of debt. Debt, in the form of credit cards, car payments, student loans, mortgages, etc. promises to be the great equalizer in a world that just keeps getting more expensive to live in. “You just had a tough month. You won’t have so many unexpected expenses next month. You can go ahead and get that _______ you really want on credit and pay it back next month.”

If you’ve been reading Eva’s wisdom here for long, you don’t really need me to expound on why debt is so dangerous, harmful, and deceptive. Let me just reiterate that if you can’t afford it, don’t buy it. Live within your means. If you don’t like that, work hard and find a way to earn more. Just avoid debt like the plague. Simple, yet so hard to stick to. As with most hard things in life though, the rewards for doing it right are great in the long run.

Here’s the thing though. I’m in my twenties and have graduated from college. (Debt free, because I am very debt adverse and made my college decisions based on careful financial calculating.) I work now, live on my own, pay all my own bills, and have more expenses than ever before. To cap it all off, I am going to start law school in the fall, which means I’ll be entering three solid years of little to no income. I’ve come to realize that some debt is inevitable. Not only inevitable, but immensely useful. It pains me to admit that, but without taking some loans, it will be impossible for me to make it through law school. This begs the question: where’s the line in all this? You just got done saying avoid debt, and then turned around and said it’s useful? Hello?

I don’t pretend to have this whole money thing figured out entirely. But I know some much older, wiser folks who have. (Footnote: find someone you know who manages their money well and talk to them about it. Financial success doesn’t just happen and their advice might be some of the best you get.) Based on what some of these folks have advised me, I think there are two things that are worth going into debt for: your education, and a house. But I say that with caution. Take tens of thousands of dollars in debt willy nilly to pay for your education and you might be financially crippled for decades afterwards. Similarly, you do yourself no favors if you buy your dream house right out of college and saddle yourself with decades of high mortgage payments you can’t afford. Where’s the balance? It will be different in every situation, but I’m happy to share the balance I’ve accepted after some careful thought.

I sincerely wanted to do law school debt free. I was absolutely determined to find a way to make that happen at the start of last fall as I began applying to schools. I had worked hard in undergrad, graduated with a very strong GPA, and had done well on the LSAT. All the ingredients for law school scholarships. I started saving as much money as I could (made much more difficult by things like that transmission I mentioned) so that I could have some cash to live off of and hopefully avoid loans. But then reality struck. I got in to almost every law school I applied to. Almost all of them offered me generous financial aid packages. And I suddenly was face to face with the reality that I was going to have to go into debt to go to law school.

The average student graduating from law school has $100,000 in debt. That’s the AVERAGE. Many students have more. I personally am not willing to take anywhere near that amount of debt, but I am still planning on going to law school, and I know I will have to take debt. How much is too much? For me I’ve decided that I’m comfortable taking living debt, and nothing more for three years. What that means is that I will be accepting a full ride scholarship to a top 25 law school, and I won’t be paying them a penny for school. I will have to pay for an apartment, food, gas, insurance, and all living expenses for three years. That will still add up to quite a lot of debt.

I’m hoping to avoid taking more than $10,000/$15,000 of living debt per year while in school, and will be living like a monk and scrimping on everything. Even still, that comes out to 30-45 thousand dollars in debt over three years of law school. Is it worth it? I hope so. If I graduate and don’t have a job, I’ll be in some serious financial hot water. But based on the salaries of first year lawyers graduating from respected law schools, I should be able to pay it off in a couple years if I’m aggressive, continue to live like a monk, and spend a majority of my spare money on loan repayment.

What does this mean for all of you who are much more concerned about college than grad school right now? Avoid undergrad debt like its Ebola. Go to community college. Study online. Go to your state’s public university that has great scholarships for in state students.  I can’t imagine tossing an additional thirty to forty thousand dollars of undergrad debt on top of the law school debt I’ll have to take. Our generation is currently crippled by 1.2 TRILLION dollars of student debt so don’t start taking it any sooner than you have to. Grad school will require taking debt. That is almost a given. When you do have to take debt, take it cautiously. Your education is the best investment you’ll ever make. (So said my grandfather, one of the most financially savvy and successful people I’ve ever talked to about money.) But like any investment, look before you leap.  Investments can be huge successes, major losses, or just ho – hum. Crunch the numbers. Think carefully.

At the end of the day, you might just have to take some debt to get where you want to go. But remember, debt can be a potentially useful servant, but if it gets out of control, and it can in a heartbeat, it becomes a truly terrifying master. If there’s one thing I’d like to you take away from this post, it’s think carefully about debt, realize that some debt can be both a good investment and necessary, but in our instant gratification, want-it-now, I’ll-pay-for-it-later culture, that’s the case far less often than you might initially want to think.

Best,

Tim

I really appreciate Tim taking the time to explain his thoughts on student loan debt and how to make a wise decision for your own unique situation. There are times that it is appropriate to take on some debt but the amount should be as low as you can possibly make it. What are your thoughts on student loans? Do you think you will be able to graduate debt free?

 

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net