Of Mice and Men (Part I)

I am close to changing my mind on one of my 10 rules for young couples. I have always thought student debt with and only with a plan was OK. Now I am not so sure this is a good recommendation without further caveats. A plan goes something like this; I will major in electrical engineering and minor in computer science with the intent of finding a job with one of the major defense contractors developing new robotic weapons systems. Another plan might be; I will major in nursing with the intent of obtaining a MSRN in geriatric medicine in order to serve the aging baby boomers in their declining years.
The problem is well defined in poetry, “The best laid plans of mice and men go oft awry.” Recently, Seth Godin, quoting a report by the National Association of Colleges and Employers annual student survey observed that only 20 percent of 2009 college graduates who applied for a job actually have one. A lot of well laid plans went awry, but the student debt still needs to be paid. This statistic does not address the college dropouts who are saddled with debt and don’t have a degree.
What does this all mean in practical terms? I have read the $20,000 in college debt is a pretty common number at graduation. If my calculation is correct, $20,000 at 6% for 10 years works out to a monthly payment of $222.04 without any additional fees or extraneous charges. Given a take home salary of $2,000 a month this is not an unduly burdensome sum. However, given a take home salary of $0.00 this debt is devastating and it doesn’t go away. Not even bankruptcy clears a student loan. In fact death is not going to get rid of that debt. The bank can come after your 15 year old Honda Civic and your stereo system after your passing to help cover your debt. Really! $20,000 probably represents a number of small bridge loans that covered some short falls in cash flow while attending a public university with in state tuition. How about those students graduating from expensive private schools with debts in the low six figures? $100,000 is crippling even for a young person with a good job. It guarantees no house, no new car, and probably no wedding for close to ten years.
There are state and Federal government programs that lead to partial forgiveness of student loans. Typically these programs require service in public education, law enforcement, or the military. Programs such as Teach America require service in dangerous urban slums or isolated impoverished rural settings. Some of the state programs are threatened by the recent collapse in tax revenues and may default on their promises.
Some relief is coming in the form of Income Based Repayment starting July 1, 2009. See http://projectonstudentdebt.org/ for more information. This still does not make debt go away. It will stretch payments out from 10 years to 25 years and forgive what has not been paid after 25 years. Of course, stretching out payments leads to larger total payment. $20,000 at 6% for 25 years lowers the monthly payment to $128.86. However that leads to a total payment of $38,658.08 for $20,000 in borrowed money.
The following passage is taken from the Kaddish, the Jewish prayer thought by some to have been in the mind of our Savior when he taught the Lord’s Prayer.

Upon Israel and its rabbis and their students.
And upon all their student’s students,
And upon all those who engage in the Torah,
In this Holy place and in all other places,
May they and you have much peace,
Grace and kindness and mercy and long life,
And plentiful nourishment and salvation,
From before their Father in Heaven and earth,
And say, Amen.