Know Before You Owe: Student Loan Edition

Here’s your good citizenship opportunity for today:  check out the Know Before You Owe: Student Loans website hosted by the Consumer Financial Protection Bureau, and let them know your opinion on their idea for a simple, easy-to-compare financial aid shopping sheet.

There was one significant concern I had with the financial aid sheet: it doesn’t address the fundamental reason most young people go to college: getting a good job and building a career.  When many student go to college, they are thinking about their future career, and will make their choices on how indebted to become based on their expected future earnings.

Aaaaaand, here’s where there can be real trouble.  You see, college students are shown average salaries for careers they’re thinking about having.  For example, students with an interest in chemical engineering will be shown the U.S. median earnings for a chemical engineer, which is $90,300.  That’s pretty nice!  Or how about my own industry, personal financial advisors?  The median salary is $64,750, which is also not too shabby.  So, now we have set some expectations.

Of course, college students can do the math.  It’s not too difficult to pay off a $708 per month payment on a balance of $68,000*, if you’re making $90,300 as a chemical engineer.  So they sign for the loan.  But, there’s a little hitch.

Most chemical engineers and personal financial advisors don’t make that kind of money at their first job out of college.  It’s much closer to the tenth percentile (or even less.)  Median starting salaries for chemical engineers are $64,500**, and for personal financial advisors, about $30,000.  In my experience, it was less.  Now, couple that with a $708 per month payment, and you’ve got anything from a real pain to real trouble.

I’m sure one could retort that “pay will go up, but the payments remain the same.”  To which I respond, “you hope.”  Bad things happen.  There are recessions and periods of high unemployment.  There are layoffs.  There are health crises.  You don’t know that your income will go up.  And you don’t know that you income will go up quickly enough.

So, in my opinion, if you want to see what it is that screws people up financially with student loans, it’s the outsized expectations that are set for their starting salary.  And, to point fingers, those expectations are set by college advisors.***  A nice comparison sheet won’t help that.

* Purely hypothetical.

**  One of the highest starting salaries available for people with a bachelor’s (in chemical engineering.)

***  Some say “not to point fingers.”  I’m pointing fingers.

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