News You Can Use: Looking at Student Loans through Untinted Glasses

Last August, we included an item regarding student loans and the burden they place on young adults and families. A recent Presidential Prayer Team news item has put this topic back on our radar.

According to the PPT article, several thousand students facing significant student debt are now suing their colleges for “failure to live up to promises” of careers, income, etc. The article went on to predict that the lawsuits had little chance of success, but indicated a growing dissatisfaction with the return on student loan debt.

All debt presumes on the future. The person who buys a new car, for example, assumes that current employment and income will continue so that the loan can be repaid. The same is true of any debt taken on by a working person.

Student debt is different than these other debts in that it makes the more dubious bet that circumstances that don’t exist at the time of the loan (that is, having a job to repay the loan) will exist at some point in the future. Any number of assumptions are tied up in this speculation, including the assumptions that a student will successfully complete a college career and will almost immediately get a job that will provide sufficient income to repay the loan (often tens of thousands of dollars) in addition to affording living expenses, etc. When marriage and family enter the picture, the number of assumptions multiplies.

Scripture teaches us that it’s foolish to start building a tower without first sitting down to count the cost (Luke 14:28-30). High school students nearing graduation and their parents are wise to take a look at real circumstances in determining whether they can afford to take out student loans, and how much debt they can afford. Here are a few questions to consider:

  1. How much debt is anticipated, based on known and projected college costs?
  2. What will the payments on that debt be? When will they start?
  3. What is the average entry level income for graduating college students in the chosen field? (If the field hasn’t yet been chosen, be conservative and project an average or slightly below-average paying industry for calculations.)
  4. What are average living expenses – rent, food, clothes, etc., in the community where the college is located or in the student’s current community? (Many college students will begin their job careers relatively close to their college or their home prior to college.)

If you have a student considering taking on college loans (or taking on more loans), spend a bit of time working through a projected budget based on the above, considering taxes, giving, and saving as parts of the budget. None of those numbers are guaranteed, of course (which takes us back to the statement about presuming on the future), but this will give you a more realistic starting point than the average college admissions officer might paint. Download the Spending Plan spreadsheet from our Freed-Up Financial Living resource page to help you plan.