There are likely more reasons to avoid student debt than Warren Buffett has dollars, or a mole has atoms, but this one to me is very important.
The Student Debt Problem
Students graduate now with over $25,000 of student debt. In Canada that is rough, but in the States there are horror stories of people graduating with over $200,000 of debt. No matter what there is a lot of debt moving into the work force.
These loans need to be paid back, luckily you will be working full-time and cashing those lottery style giant cheques every two weeks. Those payments don’t stand a chance and you will be free of them in no time! Right?
A $25,000 loan with a 4% interest rate will have $83 in interest every month plus whatever principal amount gets paid in the monthly payment. So about $100 every month. That is not so bad but save that for a year and you could have a pretty nice new laptop.
The average debt seems manageable, but any more than that and the payments can start creeping upwards. And the thing is that the more debt you have, the more money you need to make in order to pay it back. That is the point of all this.
Knowing What you Want to Do
I do not entirely know what I want to do after I graduate. Like a lot of people my aspirations have shifted many times over the years. I can remember wanting to be a professional wrestler, an NHL player, a pro football player (when I watch the CFL sometimes I insist that pro football player is still a possibility), an accountant, a personal trainer, and now I think physiotherapist. Really all I am certain about is that I am not certain about anything.
I still know that I would love to be a personal trainer. But I also really like having enough money to not worry about money. Part of the appeal of physiotherapy is that it would be a higher, more stable pay cheque. It is the more lucrative job financially. I have these thoughts without any debt. Add $25,000 debt and a dream job could be potentially ruled out.
The Debt/Income Expectation
Many go to university expecting that the years of earnings they give up will be replaced by higher earning years after graduating. I have held labour jobs and could be working one of them full-time right now, but I am in school hoping that the job I get with my degree will pay more than them. But if I had a huge debt to pay off I may be forced into a job I don’t want just to pay the bills. Beggars can’t be choosers.
I want to have no debt and even considerable savings when I graduate so that I can afford to be a bit picky, which with my degree I think I deserve. If I couldn’t get the job I trained for in a year, I want to have the choice of picking a lesser job or continuing my search for the dream job without having bills mounting up and swaying my decision.
By not having debt from school it gives the student options that otherwise are closed off. Freedom from debt leads to freedom elsewhere.