Money $marts: The student loan albatross

GERRY KRAMER

Fifty years ago I received my acceptance letter for admission to the City University of NY (CUNY), along with notice of the tuition due for the first semester — $24. Yes, that’s right, $24 per semester ($48 annually) was the tuition.

Because acceptance was based solely on merit — a combination of GPA and SAT scores — CUNY students were culled from the top 10 percent of New York City’s high schools’ graduates. The CUNY curriculum was difficult requiring two years of core courses in science, math, English, history, social sciences, foreign language and even Phys-Ed before a major could be chosen. So a quality education was provided virtually for free.

Today, getting a free quality college education is the stuff of dreams (or the demands of the Occupy Wall Street crowd). Long ago, CUNY, like many public university systems around the country, began charging more — CUNY’s annual tuition plus fees is set to rise to almost $7,000 in 2013. Still, that’s small compared to the $60,000 charged by some private colleges in the U.S. Getting a college degree is going to cost you.

Some past columns made the case for spending the money; the present value of future earnings over a lifetime with a degree greatly exceeds (as much as $700,000) college costs. But the data is based on averages of top earning college graduates and low earners. Top earners were serious students, generally came from the best schools, chose more difficult courses and moved into the top professions (e.g. doctors, lawyers, scientists, etc.) Low earners were less serious students opting for the easy courses and looked for any job requiring a college degree. Thus the range of economic benefit for a college degree is wide, which brings us to the student loan problem.

For many students, attending college requires borrowing money. For those that do, the average debt burden after graduation is somewhere around $20,000. While that doesn’t seem like a lot compared to the lifetime higher earnings stream from having a college degree, a combination of job opportunities derived from course of study can make paying back $20,000 a huge burden on the budget. For example, a simple 10-year payoff plan at 5 percent annual interest requires $211.25 a month payment. A $25,000 annual salary yields about $1,450 a month after taxes. Subtract the student loan payment and that leaves $1,240 for rent, utilities, food, entertainment, medical, clothes, transportation, etc. Earn less than $25,000 and the debt drain worsens.

For many college graduates today, the student loan burden is proving too much. About 25 percent of the $1 trillion currently outstanding in student loans is in default. In this economy graduates are staying unemployed longer or are finding only low wage jobs. This is particularly true for those who were less serious students with degrees in less marketable but easy programs of study.

If college is a choice (and it should be) and loans are a necessity, get serious about it; choose marketable courses of study (computers, accounting, medicine, etc.) Otherwise student loans will be an albatross around your neck for a long time.

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Write to gerryk3001@yahoo.com.

© 2012 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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