My cousin wants to take out $100k in undergrad loans

[Firebird]

I'm attending my cousin's high school graduation next week, and after that she plans to attend my out-of-state alma mater.  The figure she was quoted, per semester, was roughly $12.5k.

Since I last attended the school in 2009 and spent approximately $35k for the calendar year (I took a full semester over the summer), that figure sounds reasonable to me.

Unfortunately, she hasn't gotten any scholarships or grants, nor does she have any college savings, so her plan is to pay for this with loans.

I'm not bashing loans - I had to take out $15k myself for that final year (in addition to the $20k I had saved), and it was the best option for me.  However, I don't know if she fully understands the ramifications of a six-figure loan in her early twenties. 

Obviously, there's things she can do to defray the cost - take extra credits/online classes in summer, work part time during the year and full time during the summer - but realistically, that *might* shave off maybe 1/4 of the cost.  $75k is still a hell of a debt load, IMO, for undergrad education at an average state school.

If you were me, what advice would you give my cousin about her education plans?

(The usual drill - can't post often during the day, will answer questions when I can.)

[Firebird]

Oh, and she's not sure yet what she wants to major in but I believe she's leaning toward interior design.  (I don't really consider that relevant since very few 18 years olds know what career they want to pursue before they even step on campus.)

[NomoreDramaQ1015]

I'd encourage her to talk with a loan officer and the financial aid department at her chosen school. They can go thru her options with her and they can go over current interest rates on what's out there and what the payment plan would potentially look like when she graduates.

Just because she didn't get a lot in federal aid doesn't mean there isn't anything out there. Schools often have their own scholarships/grants that people can apply for but you need to ask. She should also check out FastWeb and see what she might qualify for. I had friends who got a few grand from random scholarships nobody else was applying for.

Otherwise you can't fix stupid. If she chooses to go ahead and take out that much in loans she's free to do so. She'll have to learn the hard way.

[hoops902]

One of the most obvious answers is 2 years at a community college, then the bachelor's at the state school.  The state degree isn't any different if you went there 2 or 4 years.

The other answer being that since she doesn't know what she wants to do exactly (which I agree is common), is that if she changes her mind about her future and her prior credits don't cross over, she's only out the community college tuition and not $50K.  It makes changing to something you think you'll love a lot easier and may not feel as "trapped" byneeding to continue in an area where prior credits count due to their expense.

[Firebird]

One of the most obvious answers is 2 years at a community college, then the bachelor's at the state school. The state degree isn't any different if you went there 2 or 4 years.

Totally agree.  I will definitely encourage her to do that.  She can defer her enrollment a couple of years and be in a much better position.

[Firebird]

Just because she didn't get a lot in federal aid doesn't mean there isn't anything out there. Schools often have their own scholarships/grants that people can apply for but you need to ask. She should also check out FastWeb and see what she might qualify for. I had friends who got a few grand from random scholarships nobody else was applying for.

I like it.  I think one of the problems is that she is the first in her immediate family to go to college and doesn't have anyone readily available to guide her.  So I'll definitely mention this.

[Deleted]

What is her reasoning for choosing an out of state school?  That alone is taking probably a 30% premium on the cost. 

Unfortunately, If she just graduated and is already set to go there, there probably isn't anything you can do to talk her out of it at this point.  I guess if it were me, I'd try to show her what 75-100K of debt will be like (in terms of payments) and what that will mean to her finances starting out.  I'd also help her explore alternative routes (in state, community college, live at home?) and show her how that would look financially when she finished.  It's hard to get them to grasp what all that debt means before they've ever worked for a living.

[NancysSummerSip]

May 22, 2014 9:16:06 GMT -5 Firebird said:

One of the most obvious answers is 2 years at a community college, then the bachelor's at the state school. The state degree isn't any different if you went there 2 or 4 years.

Totally agree.  I will definitely encourage her to do that.  She can defer her enrollment a couple of years and be in a much better position.

If nothing else, she can take the basic required classes at a community college; the ones she would need no matter what her major is. And if she stays local (lives with the folks), she can also work, and save the money towards those last two years of school.

[Firebird]

What is her reasoning for choosing an out of state school? That alone is taking probably a 30% premium on the cost.

I assure you, it wasn't anything I said to recommend the school   I hated my experience there (not that it was the school's fault - it's a great school, I just had an awful time in university from the word go).  I'm not really sure why she's choosing to go there, except that maybe the one state school in her state didn't appeal to her.

I'd try to show her what 75-100K of debt will be like (in terms of payments) and what that will mean to her finances starting out.

That's a good idea.  Anyone with more math smarts than me want to take a crack at the potential payment she'll be facing circa December of 2018?  Assuming she goes for eight semesters with no breaks.

[alabamagal]

"She doesn't know what she wants to major in, but is leaning toward interior design" - that right there is community college material, and definitely not go to an out of state school for that.

[giramomma]

I'd sit her down with her and draw up a budget based on what she might get at her first job. Assuming a MCOLA, I'm betting she'll get paid 25-30K max for her first job.

Show her how much she has left monthly after taxes and retirement contributions. Then subtract out her student loan payment. Tell her that left over amount is how much she will have to live off of, and she'll still need to save on top of that. Then go through and see how much rent is, how much cable and cell phone packages are, etc. You know, where Cosby does the money thing with Theo...

I'd also talk about programs like the Peace Corp and Americorp. The loan forgiveness isn't much. But it's something.

Even if something only shaves off 10-15% of the total cost to attend college, she should still do it. All the little things can begin to add up. I didn't get ahead financially by making one or two grand gestures. I worked ever little angle, big and small, because it all makes a difference.

I would also discuss living conditions. She can't control the cost of tuition, but there is PLENTY she can do to reduce the cost of room and board.

[Deleted]

There's only one state school in her state?  Holy crap.  Ours has 31, plus reciprocity with 3 other states (and Canada apparently!)

[giramomma]

May 22, 2014 9:20:33 GMT -5 minnesotapaintlady said:

What is her reasoning for choosing an out of state school?  That alone is taking probably a 30% premium on the cost. 

Unfortunately, If she just graduated and is already set to go there, there probably isn't anything you can do to talk her out of it at this point.  I guess if it were me, I'd try to show her what 75-100K of debt will be like (in terms of payments) and what that will mean to her finances starting out.  I'd also help her explore alternative routes (in state, community college, live at home?) and show her how that would look financially when she finished.  It's hard to get them to grasp what all that debt means before they've ever worked for a living.

It is hard to grasp, and I know the prevailing attitude here is that no one under the age of 25 has any common sense. But it still is possible to get a little bit of the big picture.

When I got my undergrad, my choices were to stay in state and have no debt, or go out of state and incur 60K in debt. I also knew I'd have to attend graduate school.

I never worked in high school, beyond a handful of baby sitting jobs. I did know that my dad was making 40ishK a year and I figured I'd likely make half that at my first job. Putting all that together, even as a non-stem major that took the easy math path in HS, I could get that going out of state wasn't a good idea.

My parents taught me nothing about finances other than to save for a rainy day and you don't buy it unless you have the cash. The only exception was a house.

[steph08]

She's looking upwards of $1100/month over a 10 year term for 100k in loans. www.finaid.org/calculators/scripts/loanpayments.cgi

More like $750 for a 20 year term.

I would want to kill myself with a student loan payment like that, especially for something like Interior Design, which can't support that payment!

[Firebird]

I should have put this on YM. 

Okay, so let's draw up a sample budget for her.  Say she's making $35k/year her first year out of school (we'll be generous).  She returns to her hometown (lol), where you can get a nice apartment for $600 or so.

$35,000 base salary

~$10,500 taxes
~$7,200 rent
~$8,000 student loan payments (someone help me here, I'm totally ballparking)
~$4,800 car expenses
~$2,500 food

I'm coming up with $33,000 for very bare minimum basics.  Leaving like $170/month for "everything else" including savings.

She's going to be hating life.  I don't see it working. 

[Deleted]

May 22, 2014 9:32:24 GMT -5 giramomma said:

May 22, 2014 9:20:33 GMT -5 minnesotapaintlady said:

What is her reasoning for choosing an out of state school?  That alone is taking probably a 30% premium on the cost. 

Unfortunately, If she just graduated and is already set to go there, there probably isn't anything you can do to talk her out of it at this point.  I guess if it were me, I'd try to show her what 75-100K of debt will be like (in terms of payments) and what that will mean to her finances starting out.  I'd also help her explore alternative routes (in state, community college, live at home?) and show her how that would look financially when she finished.  It's hard to get them to grasp what all that debt means before they've ever worked for a living.

It is hard to grasp, and I know the prevailing attitude here is that no one under the age of 25 has any common sense. But it still is possible to get a little bit of the big picture.

When I got my undergrad, my choices were to stay in state and have no debt, or go out of state and incur 60K in debt. I also knew I'd have to attend graduate school.

I never worked in high school, beyond a handful of baby sitting jobs. I did know that my dad was making 40ishK a year and I figured I'd likely make half that at my first job. Putting all that together, even as a non-stem major that took the easy math path in HS, I could get that going out of state wasn't a good idea.

My parents taught me nothing about finances other than to save for a rainy day and you don't buy it unless you have the cash. The only exception was a house.

But that is huge.  If you assimilated those two basics, the rest is just details. 

[zibazinski]

May 22, 2014 9:06:12 GMT -5 Firebird said:

Oh, and she's not sure yet what she wants to major in but I believe she's leaning toward interior design.  (I don't really consider that relevant since very few 18 years olds know what career they want to pursue before they even step on campus.)

Holy cow, seriously? OMG. 

[giramomma]

May 22, 2014 9:35:19 GMT -5 Firebird said:

I should have put this on YM. 

Okay, so let's draw up a sample budget for her.  Say she's making $35k/year her first year out of school (we'll be generous).  She returns to her hometown (lol), where you can get a nice apartment for $600 or so.

$35,000 base salary

~$10,500 taxes
~$7,200 rent
~$8,000 student loan payments (someone help me here, I'm totally ballparking)
~$4,800 car expenses
~$2,500 food

I'm coming up with $33,000 for very bare minimum basics.  Leaving like $170/month for "everything else" including savings.

She's going to be hating life.  I don't see it working. 

I'd also talk about how financial freedom gives you choices.  I've also appreciated that our family has had a choice as to whether or not we want two working parents. We have choices about the jobs we take or don't take. It's really nice to be in this position, rather than to be a position where we have no choice.

And holy car costs batman! She doesn't need a brand new car, does she? What would happen if she split an apartment with someone? I'd use this to show her that she won't have it all, but she can make very conscious decisions about how she's spending her money. Living a 1 bedroom by yourself is a choice. Having a newer car is a choice. Perhaps she's willing to forgo some things to go to school. You don't know that yet, do you?

[Firebird]

And holy car costs batman! She doesn't need a brand new car, does she?

That was just a guesstimate.  She doesn't have a car right now but she will probably want one when she gets out of school. 

ETA:  Anyway, if she gets a junker she'll have a lot of repairs instead of loan payments for a new car.  So I think it's pretty much a wash either way.  Cars are just expensive.

[Firebird]

I'd also talk about how financial freedom gives you choices. I've also appreciated that our family has had a choice as to whether or not we want two working parents. We have choices about the jobs we take or don't take. It's really nice to be in this position, rather than to be a position where we have no choice.

Excellent point.

Any advice on how to approach this?  I hate to rain on her parade when she's supposed to be celebrating but her graduation weekend is my only chance to see her for awhile and if I can knock some sense into her, she'll have the whole summer to revise her plans into something a little kinder to her future self.

Like I said, she has no role models for this stuff.  She could have come and talked to me (or my parents) at any time, but she didn't.  I don't even think she understands why that would have been a good idea.  She's not stupid, just 18 and naive. 

I don't want to be overbearing but I do want to help her if I can. 

[Deleted]

Car costs aren't just the payment.  There's gas, maintenance and insurance, so $4800 isn't really that much. 

[Firebird]

Perhaps she's willing to forgo some things to go to school. You don't know that yet, do you?

Nope.  I don't know much at all.  This cousin and I aren't close - I care about her, of course, but we never talk.  That's part of the reason I don't know how "doom and gloom" I should get next weekend.  If it were her brother, I'd be all over his ass - but only because I'm much closer with him and he appreciates my advice and it would be appropriate for our relationship. 

On the other hand, I don't want to see her make bad choices if I can help her avoid them.  So I'm kind of torn. 

[steph08]

May 22, 2014 9:35:19 GMT -5 Firebird said:

I should have put this on YM. 

Okay, so let's draw up a sample budget for her.  Say she's making $35k/year her first year out of school (we'll be generous).  She returns to her hometown (lol), where you can get a nice apartment for $600 or so.

$35,000 base salary

~$10,500 taxes
~$7,200 rent
~$8,000 student loan payments (someone help me here, I'm totally ballparking)
~$4,800 car expenses
~$2,500 food

I'm coming up with $33,000 for very bare minimum basics.  Leaving like $170/month for "everything else" including savings.

She's going to be hating life.  I don't see it working. 

I just went back to the dark days of when I started at my job - I was making slightly less than $34k (not that I make a whole lot more now ).

$34,000 base salary

-$8600 taxes and health/dental/vision insurance ($330/paycheck, 26 paychecks/year - this does not include retirement)
-$7200 rent (using your number)
-$9000 student loans ($750/month for 20 years!)
-$4800 car (using your number - might get a cheap apartment, but might be far from work)
-$2400 food (I think $200/month is enough for one person)

So she has $2,000/year left, $166/month for things like haircuts, car maintenance/insurance (she might blow the whole yearly car budget on a new car payment), going out with friends, insurance copays, prescriptions, retirement, savings, etc.

That is rough!

Or 30 year term:

$34,000 base salary

-$8600 taxes and health/dental/vision insurance ($330/paycheck, 26 paychecks/year - this does not include retirement)
-$7200 rent (using your number)
-$7200 student loans ($600/month for 30 years)
-$4800 car (using your number - might get a cheap apartment, but might be far from work)
-$2400 food (I think $200/month is enough for one person)

So she has $3,800/year left, $316/month.

[Deleted]

May 22, 2014 9:33:46 GMT -5 steph08 said:

She's looking upwards of $1100/month over a 10 year term for 100k in loans. www.finaid.org/calculators/scripts/loanpayments.cgi

More like $750 for a 20 year term.

I would want to kill myself with a student loan payment like that, especially for something like Interior Design, which can't support that payment!

it would be a 30 year term or income based repayment so your $1100 a month is not realistic

[giramomma]

May 22, 2014 9:51:53 GMT -5 minnesotapaintlady said:

Car costs aren't just the payment.  There's gas, maintenance and insurance, so $4800 isn't really that much. 

I suppose. We don't have car loans. I spend $60-$80 on gas a month and insurance is $30/month. I drove around a 16 year old car when I was under 25, so car insurance was still rather low.
We also have a short commute and I take the bus/walk when I can. DH spends $100 a month on gas and car insurance is a little more...

[steph08]

May 22, 2014 9:56:50 GMT -5 @singlemominmd said:

May 22, 2014 9:33:46 GMT -5 steph08 said:

She's looking upwards of $1100/month over a 10 year term for 100k in loans. www.finaid.org/calculators/scripts/loanpayments.cgi

More like $750 for a 20 year term.

I would want to kill myself with a student loan payment like that, especially for something like Interior Design, which can't support that payment!

it would be a 30 year term or income based repayment so your $1100 a month is not realistic

Well, my DH's student loans are on a 10 year term, so I just went with that. Of course, his loans are nowhere near $100k.

I, personally, would not want to repay student loans for 30 years.

[Firebird]

I, personally, would not want to repay student loans for 30 years.

Me either!  I've been out of college for less than five years and I'm already sick of my (relatively tiny) loan.  That would totally suck, especially on a very small income.  I could be wrong but I can't ever picture her making a high enough salary to make that amount insignificant.

steph08 - awesome budgets, thanks!  I'm going to use those as a jumping off point for discussion, if I can.

[Deleted]

May 22, 2014 9:59:08 GMT -5 giramomma said:

May 22, 2014 9:51:53 GMT -5 minnesotapaintlady said:

Car costs aren't just the payment.  There's gas, maintenance and insurance, so $4800 isn't really that much. 

I suppose. We don't have car loans. I spend $60-$80 on gas a month and insurance is $30/month. I drove around a 16 year old car when I was under 25, so car insurance was still rather low.
We also have a short commute and I take the bus/walk when I can. DH spends $100 a month on gas and car insurance is a little more...

So, add on a $200/month car payment to $100/month in gas, $50/month in insurance and $50/month sinking fund for maintenance and you're at $4800/year.  She's not going to have any savings so unless she's somewhere with public transportation (we have none), or someone gifts her a beater, she'd have to take out some kind of loan for a car at first. 

Personally, I spend 3K/year just in gas.

[Deleted]

May 22, 2014 10:00:30 GMT -5 steph08 said:

May 22, 2014 9:56:50 GMT -5 @singlemominmd said:

it would be a 30 year term or income based repayment so your $1100 a month is not realistic

Well, my DH's student loans are on a 10 year term, so I just went with that. Of course, his loans are nowhere near $100k.

I, personally, would not want to repay student loans for 30 years.

I don't even like 30 year mortgages!

[Deleted]

May 22, 2014 10:11:21 GMT -5 minnesotapaintlady said:

May 22, 2014 10:00:30 GMT -5 steph08 said:

Well, my DH's student loans are on a 10 year term, so I just went with that. Of course, his loans are nowhere near $100k.

I, personally, would not want to repay student loans for 30 years.

I don't even like 30 year mortgages!

well you do what you gotta do....