We’ve been seeing a lot of posts about parents dropping their kids off for another year at college. It IS that time of year—back to school. If you’ve got older kids in college or grad school or some a bit younger, still in high school, who are THINKING about going to a university, how you’re going to pay for school has probably crossed your mind!
We did a podcast 2 yrs ago (Aug 22, 2022) with Brad Baldridge (Taming the High Cost of College) about paying for college. On that episode, we covered some of the early prep work that parents can do to get ahead of the game, ways to think about that financial investment—and whether it’s truly worth what you’re paying for.
For today’s episode, our guest is Savannah Cunningham, who has fairly recently been in the trenches of grad school and has the student loans to prove it. (She also happens to be Bonnie’s daughter AND the one who pitched the idea for the JAM podcast in the first place!) *applause*
Savannah intro.
The idea for having you on for this topic came up because you’d recently stumbled into a conversation with someone who had made some missteps getting student loans for undergrad and grad school and had found himself in a tough spot financially.
You were able to help him navigate some of the errors and try to get in a better place. Can you describe that?
So, based on that whole outcome, let’s talk student loans.
First: parents, you’re not crazy. Going to college in 2024 is wayyy more expensive than it used to be. (UTK college of Vet medicine was $4000/yr back in the early 90’s; today it’s around $35k. That’s a 775% increase! Cost of college doubles about every 9 yrs.)
To decide where to get a degree and how to pay for it, you need to look at RETURN ON INVESTMENT (ROI).
–For parents of high school students or even middle school students looking ahead, think outside the box of the cookie-cutter university experience/degree. Technical degrees, trade jobs, apprenticeships, other sorts of schools (culinary, e.g.,). Jordan Peterson Academy!
Many families are in situations where both parents are working, very little is saved, and they’re doing all they can to pay the bills, let alone save for college for one –OR MORE—kids. This leaves many students in a situation where, if they’re thinking about higher education in the US, they need to know about student loans and how they work.
–they can also get summer jobs and work thru high school/college to help pay their way
Unconventional Idea: move to Europe? Norway, Finland, Sweden, Iceland, Germany and Austria (to name a few) offer free or nearly free tuition, for international students. You might have to get that biology degree in German, but you might come out with little debt… (getting there, living expenses!)
History of Federal Student Loans
Before WWII loans for higher education came from banks and private institutions. In 1944, the Servicemen’s Readjustment Act created the program now known as the GI Bill, in which the government pays for the college of soldiers after serving a select number of years. This was the first time the government became involved with higher education. The program was so popular that the families of GI Bill recipients wanted to partake in the program. The civilian equivalent was known as the College Scholarship Service. Eventually, this scholarship program turned into the Perkins Loan Program which then changed to the National Direct Student Loan program, or NDSL for short.
In 1965, as part of President Lyndon B. Johnson’s Great Society Initiative, the Federal Family Education Loans program was created. However, the FFEL was administered primarily by state or private non-profit entities. Programs with guaranteed loans, such as the FFEL, did not make banks enthusiastic. In fact, banks were unwilling to participate in the program, so Congress sidestepped them and created the Student Loan Marketing Association or SLMA. The colloquial term and present company name is Sallie Mae. This was an act by Congress to protect the government’s losses. Once the FFEL and SLMA were created, loan programs shifted to focus on the middle class. In 1992, Congress created the unsubsidized loan. In 1993, the Student Loan Reform Act produced the Federal Direct Loan Program.
Now, the government, rather than banks, states, or private entities, are the source for over ninety percent of all student loans. In fact, student loans’ original jurisdiction is with the Department of Education. This is a problem. Why? Because banks would be more selective in providing loans, similar to providing home loans, which provides just assessments for people wanting to go to specific colleges. Schools with high tuitions would end up receiving more students who could afford the school close to out-of-pocket instead of through several years of student loans.
Student Loans for Undergrad Each year, 30 to 40% of all undergraduate students take federal student loans; 70% of students who receive a bachelor’s degree have education debt by the time they graduate.
- As of the first quarter of 2024, Americans owed $1.75 trillion in education debt.
- 51% of 2021-22 bachelor’s degree recipients graduated with an average of $29,400 in student loan debt.
- Among all borrowers, the average student loan debt in 2023 was $38,787.
- 53% of federal student loan borrowers owe $20,000 or less.
- 47% of the total outstanding federal loan debt is held by 10% of borrowers, who owe $80,000 or more.
- Just 10% of college graduates took out private student loans in 2021-22, but they had nearly twice as much debt as federal loan borrowers.
Student Loans for Grad or professional programs (Savannah’s experience of pharmacy/medical school)
Altho graduate borrowers are only 21% of the students who carry loans, they may soon be a majority of the fed loan portfolio because (1) more people are pursuing advanced degrees and (2) grad school costs can be higher…average student debt is around $44K.
TYPES OF LOANS
Federal vs. Private (banks, credit unions, other financial institutions)
For undergrad, federal is generally better…doesn’t depend on your credit score, and is generated by FAFSA.
How do student loans work in practice? Walk through what you, as a student, had to do to make sure your tuition was paid each semester. (Accepting, what amount you’re accepting & why…)
PAYING OFF LOANS
Once you’ve accrued all that debt and graduate, now what??
SAVE plan (income based)
Job repayment
PSLF
Refinancing
In response to the COVID-19 pandemic, the US federal government paused payments and student loan interest accrual for federal loan borrowers in March 2020, with monthly dues resuming in October 2023. It also broadened eligibility for existing loan forgiveness programs and introduced other relief options, including the SAVE plan. (The best private student loans offer temporary reprieves on repayment but stop far short of forgiveness.)
IRL example (from Steve Cotterill, @socialiststeve6): wife & husband left grad school 23 years ago with combined total of $70k debt. Since then they’ve made $500/month payments for 23 years ($120,000+). Today, they still owe $60k.
When we talk about “forgiving student debt” this is the issue that’s meant. Paying back with a reasonable amount of interest so families won’t be in permanent debt….
After paying on a $300k student loan for 25 years, the remaining balance may then be “forgiven,” BUT you will owe TAXES on that remaining balance! If there’s $150k left, depending on your income bracket, you may be on the hook for a lump sum tax payment of $30k or more…so in addition to making those monthly debt payments, you need to set aside money in a separate account to pay those taxes if you know you won’t have the debt paid off by then.
Scholarships
Resume
Editable Essay
Transcripts
LORs
Interview Skills
Where to find: involvement & Work
Biblical Worldview
In the book of Leviticus in the Old Testament, God gave the Israelites the Sabbath Year and Year of Jubilee.
The Sabbatical Year came every seven years. Just as God worked for six days and rested on the seventh, the Israelites were supposed to work hard for six years and rest in the seventh. All debts were to be forgiven, harvesting and cultivating were supposed to be stopped, and Hebrew servants were released. The sixth year’s harvest, before the Sabbatical Year, was made plentiful by God, and the Israelites were commanded to store up the excess for the coming year. They were to not cultivate nor harvest during the seventh year. However, a volunteer crop would still spring up, by God’s blessing, and the Israelites could glean from it as well. The leftovers from the sixth year’s harvest would last for three years, during the seventh, eighth, and ninth year. This symbolized God’s providence for the Israelites, and they needn’t worry about what to eat because God is Jehovah Jireh.
After seven rounds of seven-year sabbath cycles, which totals forty-nine years, the Israelites would undergo the Year of Jubilee. This year had all the characteristics of the Sabbath Year, but it recognized universal redemption. It was a full year of release from all forms of bondage and indebtedness. Property was returned, slaves were released, debts were canceled, and freedom from labor. The Year of Jubilee was made for rest and continuous praise for God’s blessing, mercy, and deliverance on the Israelites. This was only a one-year temporary stop-gap measure to allow the Israelites to focus on God’s presence, and then once the year was over, the Israelites went back to their everyday duties.
These two events allowed the Israelites to receive mercy for their debts. It was temporary relief from financial responsibility and indebtedness. In the Old Testament, debt was a personal agreement and transaction between two people. It was private only through the debtor and indebted. The banks function as a private entity with personal relationships with its clients. Banks implementing temporary or even permanent student loan forgiveness could be considered Biblical if both parties have completed most of the agreement and it happens only once.
How Much Debt is Okay?
For example, the Consumer Financial Protection Bureau (CFPB) suggests limiting monthly student debt payments to no more than 10% of your gross monthly income.2 This means that, if you earn an annual gross income of $50,000, you would make sure your monthly student loan payments never surpass $5,000 per year, or $417 per month.
https://www.investopedia.com/percentage-gross-salary-student-loan-repayment-8658135
Resources mentioned: Seven Figure Pharmacist and White Coat Investor