Topic: How to Handle Student Loans Later in Life
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No secret that I like Ric Edelman and I am a “client”.
He made what I thought was an interesting off-the-cuff observation with respect to “education” expense.
The caller was an older 50-ish woman who had a 20K$ student loan at less than 5% and wanted to pay it off. In delving into her circumstances, he found out that she was earning 45k per year after incurring that debt. And, he raved over the ROI.
Not sure that it’s that cut and dry, but I think it was an astute observation.
While she may have paid more than 20K$ for the “educational investment”, the decade, that she will be earning 45k annually, will earn 450K$. 450k/20k = ROI 22½. Roughly. Ignores the time value of money and that it was probably more than a 20k total investment. Ignore the opportunity cost of the time spent. Etc. Etc. Etc. But not bad for a radio show podcast.
And, also, importantly, that 20k$ loan NOT paid off should earn at least a ten year market average while preserving liquidity (i.e., the lady still has her twenty k if she needs it).
Many of the education “horror stories” reported in the media are from some very poor decisions. Picking some obscure specialties with no real market value and spending a few hundred thousand dollars that results in 100k to 200k of student loan debt is a recipe for disaster.
On 101.5 D&D show the other day, http://nj1015.com/tuition-and-wedding-costs-on-the-rise-stolen-bank-info-and-more-on-dd-today/ chatted about the cost of tuition and invited callers to tell their stories. Some of the tales were pretty interesting. The divided into two types — medical doctors with ½ million of debt and then “regular people”. Argh! Worst case: 200k$ debt for an ART DEGREE!
So this “national problem” is all about bad decisions amplified by poor Gooferment policy (i.e., cheap government insured loans at artificially low rates).
What to do?
Make “good decisions” about education ROI and the financing of that education.
Hold the politicians and bureaucrats accountable for the stupidity of these policies.
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