How much debt is too much debt?

[stilesg57]

I'm not sure exactly how the details are going to work out yet, but it certainly sounds like Obama helped us out a bit with this issue earlier today.

[gazelle]

I'm starting to think that if you need to use the IBR plan instead of the standard 10 year plan, then that's probably a pretty good indicator that you are taking on too much debt.

$140k borrowed (assuming undergrad loans as well) at 6.8% ends up at $193k, just for a standard ten year plan. The numbers get considerably worse depending on which extended plan you use, and can run as high as a mind-boggling $315k if you use a graduated repayment plan.

[fadeindreams]

I'm starting to think that if you need to use the IBR plan instead of the standard 10 year plan, then that's probably a pretty good indicator that you are taking on too much debt.

$140k borrowed (assuming undergrad loans as well) at 6.8% ends up at $193k, just for a standard ten year plan. The numbers get considerably worse depending on which extended plan you use, and can run as high as a mind-boggling $315k if you use a graduated repayment plan.

Well, so long as you work in the public sector then, again, you would qualify for the PSLF. Since my plan (hope/dream/etc) has always been to work in the Foreign Service, the PSLF works out quite well for me!

[flyers29]

I'm not sure exactly how the details are going to work out yet, but it certainly sounds like Obama helped us out a bit with this issue earlier today.

Would've helped if the interest rate was reduced. IBR is only delaying the inevitable, and smaller monthly payments only mean you will end up paying more in the long run. Hope the public service 10-year incentive is still there down the road.

[coaks]

Would've helped if the interest rate was reduced. IBR is only delaying the inevitable, and smaller monthly payments only mean you will end up paying more in the long run. Hope the public service 10-year incentive is still there down the road.

Not to mention it looks like both the new standard IBR and 20 year forgiveness provisions might only apply to new borrowers in 2014 and beyond.

I hope I am misunderstanding who is included.

[coaks]

I'm starting to think that if you need to use the IBR plan instead of the standard 10 year plan, then that's probably a pretty good indicator that you are taking on too much debt.

$140k borrowed (assuming undergrad loans as well) at 6.8% ends up at $193k, just for a standard ten year plan. The numbers get considerably worse depending on which extended plan you use, and can run as high as a mind-boggling $315k if you use a graduated repayment plan.

Good points, especially with IBR (although I would definitely lean on IBR if I had steady work for a public organization and was confident in being able to make good on loan forgiveness). Thankfully inflation and your accelerated career progression will work in your favor to help cover a lot (and for some, all) of the $53K in interest. Of course, a slew of other life events like marriages, children, extended unemployment, severe injury to yourself or a family member would work against you.

[gazelle]

Yeah the IBR seems to give favorable payment amounts at first, but once you start putting in various different numbers for the salary and amount of debt, there is definitely an uncomfortable zone where it almost seems regressive (though I don't believe it actually is); if you have an $80k salary, and have $80k in debt, that's a $795/month payment if you are single. Even under IBR, that's enough to make someone puke, let alone a mortgage, a car payment for something dependable, any credit cards, utilities, food, and any little luxuries or household needs. That $800/mo could almost be a mortgage in itself on a small home/condo. Not to mention saving for retirement. If your sole savings is a Roth IRA, which allows $5k annually in contributions, just to save that $5k is going to run you $417/mo. For me personally, I won't sacrifice my retirement fund contributions because of the massive benefits of compound interest at a young age.

$80k salary, that's $6,666 gross per month, so figure you'd have around $4000 net (just a ballpark guesstimate, not sure what the actual tax rate would be)--$800 payment, $1300 mortgage/rent (on the very low end, let alone in NYC/DC), $350 car payment (say for a newish Honda civic or something equally mundane but reliable), $600 on cell phone and utilities, $100 on car insurance, $150 on gasoline, $450 on food, and that leaves you with $250 a month. Forget saving much, let alone retirement contributions in a company 401k or a Roth IRA. Is it doable? Certainly. Is it favorable? Not particularly. This assumes you never have any incidental expenses (which of course you will), and zero debt otherwise in any form (which most people have CC debt of some sort).

Sure it sounds great to have a $50k salary and $140k in debt with only a $420 payment, but it very quickly begins to seemingly tip the other way as your salary goes up, and IMO, short of seeing a good, comprehensive graph of how the monthly IBR payment changes with respect to your income and debt plays out over time, I'm suspicious of how great it is.

$50k/$140k/$420 seems a lot better than $80k/$80k/$795. The latter scenario seems much worse since by the time you are at $80k, that's probably along the lines of when you want to have a family or buy a house, not to mention you are then in a higher tax bracket.

Edited March 31, 2010 by gazelle

[mppgal55]

Not to mention it looks like both the new standard IBR and 20 year forgiveness provisions might only apply to new borrowers in 2014 and beyond.

I hope I am misunderstanding who is included.

First: Loans make me sad. This thread is greatly depressing, even while it is also helpful.

From what I read on CNN, all of the changes to student loans are applicable to those taking loans out starting in July 2010...aka, almost everyone on these boards. So that's good news, I guess.

But really, how much help is repayment after 20 years? It's closer than 25, but it is still a long ways away.

For me, it all goes back to this question, over and over. How much debt is too much? Everyone has a different view. Do I take out $65K in loans to have a 95% certainty of finding work, or go to a different school and take out $40K in loans with about 70% certainty of finding a job? Plus, the first has starting salaries that are nearly double the second. Not sure I want to work at those places, but still. Still, though, $65K in loans sounds like too much debt to me. *insert stress of decision-making here*

[mppgal55]

oops, double post.

Edited March 31, 2010 by mppgal55

[gazelle]

But really, how much help is repayment after 20 years? It's closer than 25, but it is still a long ways away.

I'm to the point where I'm seriously rethinking the idea of grad school entirely, as much as I want it for myself and think I would like the job.

As Bill Gates said in that one episode of the Simpson's when Homer thought he was going to get bought out by Gates, "I didn't get rich by writin' checks!"

Again money should really come secondary to personal goals, satisfaction, and career aspirations but again the importance of salaries simply can't be ignored when you are talking upwards of $800+/month, and on a dragged out IBR plan no less.

I just don't see myself getting financially as ahead (and thus getting a LOT of the things I want in life--material, travel, security, etc) as I could be with a chemical engineering job with just my current bachelors degree, or especially if I had a company-paid MBA I could do part time to get into engineering management.

It's hard to plunge $100k+ into debt for a $50k job when I could stay at sub-$20k debt and get a $65k job now with quick advancement...

stress stress stress

[coaks]

First: Loans make me sad. This thread is greatly depressing, even while it is also helpful.

From what I read on CNN, all of the changes to student loans are applicable to those taking loans out starting in July 2010...aka, almost everyone on these boards. So that's good news, I guess.

But really, how much help is repayment after 20 years? It's closer than 25, but it is still a long ways away.

For me, it all goes back to this question, over and over. How much debt is too much? Everyone has a different view. Do I take out $65K in loans to have a 95% certainty of finding work, or go to a different school and take out $40K in loans with about 70% certainty of finding a job? Plus, the first has starting salaries that are nearly double the second. Not sure I want to work at those places, but still. Still, though, $65K in loans sounds like too much debt to me. *insert stress of decision-making here*

Haha, I'm glad someone brought some humor to this thread finally.

Just to show you all what I was looking at when I mentioned the 2014 thing, here's a post from the House Education & Labor committee on it:

http://edlabor.house.gov/blog/2010/03/student-loan-reform-whats-in-i.shtml#more

I hope you're right (though yeah, 20 years isn't all that big a deal compared to 25) but I fear the July 2010 situation might just be when the direct lending thing starts for everyone, not the other stuff.

Also gazelle, this is something I was glancing at earlier today about IBR.

http://www.ibrinfo.org/what.vp.html

There's a chart that shows the different percentages on there for 2009. Granted, it's incomplete, doesn't list the $80K example you mentioned and I haven't verified any info. But the graphics are pretty and it claims to be nonprofit, so I assume it's either kosher or a very malicious bank with a supersecret plan to scheme our money. Just wanted to share.

[flyers29]

Yeah the IBR seems to give favorable payment amounts at first, but once you start putting in various different numbers for the salary and amount of debt, there is definitely an uncomfortable zone where it almost seems regressive (though I don't believe it actually is); if you have an $80k salary, and have $80k in debt, that's a $795/month payment if you are single. Even under IBR, that's enough to make someone puke, let alone a mortgage, a car payment for something dependable, any credit cards, utilities, food, and any little luxuries or household needs. That $800/mo could almost be a mortgage in itself on a small home/condo. Not to mention saving for retirement. If your sole savings is a Roth IRA, which allows $5k annually in contributions, just to save that $5k is going to run you $417/mo. For me personally, I won't sacrifice my retirement fund contributions because of the massive benefits of compound interest at a young age.

$80k salary, that's $6,666 gross per month, so figure you'd have around $4000 net (just a ballpark guesstimate, not sure what the actual tax rate would be)--$800 payment, $1300 mortgage/rent (on the very low end, let alone in NYC/DC), $350 car payment (say for a newish Honda civic or something equally mundane but reliable), $600 on cell phone and utilities, $100 on car insurance, $150 on gasoline, $450 on food, and that leaves you with $250 a month. Forget saving much, let alone retirement contributions in a company 401k or a Roth IRA. Is it doable? Certainly. Is it favorable? Not particularly. This assumes you never have any incidental expenses (which of course you will), and zero debt otherwise in any form (which most people have CC debt of some sort).

Sure it sounds great to have a $50k salary and $140k in debt with only a $420 payment, but it very quickly begins to seemingly tip the other way as your salary goes up, and IMO, short of seeing a good, comprehensive graph of how the monthly IBR payment changes with respect to your income and debt plays out over time, I'm suspicious of how great it is.

$50k/$140k/$420 seems a lot better than $80k/$80k/$795. The latter scenario seems much worse since by the time you are at $80k, that's probably along the lines of when you want to have a family or buy a house, not to mention you are then in a higher tax bracket.

Just to clarify, it's 10% of your monthly salary, so if you're taking home $6666/month then your monthly payment would be $667/ month. Not a huge improvement, but just wanted to make that one point.

[sly06]

Hi,

I read this on NPR and thought it might be relevant, especially since it features a recent MPA graduate.

http://www.npr.org/templates/story/story.php?storyId=125223926&sc=fb&cc=fp

It seems like a Catch-22. Graduate degrees have become almost a requirement for a lot of jobs (when in the past, a BA would have sufficed), but the debt cripples people who struggle to find jobs despite outstanding education credentials.

Not trying to scare anyone, but just be wary of too much debt.

(And hoping our economy and employment markets improve.)

[pea-jay]

Wait a second...are we missing something here? I read on another thread and at one of my university's website, IF you go into public service you are eligible for repayments not to exceed 15% of your income and be totally forgiven after 10 years. Doesn't this turn the whole equation of getting into the expensive schools on it's head?? Or am I off base?

Nevermind, I seem to get it now. But it is official that IBR and PSLF are options NOW, not in 2014?

Edited March 31, 2010 by pea-jay

[coaks]

But it is official that IBR and PSLF are options NOW, not in 2014?

Yep, IBR and PSLF are active now. The 2014 terms (which admittedly I still don't fully understand due to conflicting info; I apologize if I've confused anyone else unnecessarily) only refer to (I believe) slight improvements to the standards used in those programs.

Edited March 31, 2010 by coakleym