Does it make sense to take on more student loan debt in hopes of earning more?[ Edited ]
My husband just got into a prestigious university, and we have strong reason to believe this will help out his job prospects financially and with much more stability. We would accrue an additional 50,000 on top of our already 35,000 in school loans. He will make around 65,000 verse the 45,000 he is currently making annually, upon graduating in three years. Is this a wise choice to go to this university and take the additional 50,000 additional dept? Our total debt would then reach 85,000 total in school loans and we have no other debt.
This is a great question but just like every other student loan decision, there’s unfortunately, no way to know the right answer in advance. There are way too many variables involved. So before taking the leap, you should try to step away from the excitement and emotion of the opportunity and instead focus on the numbers for your situation.
While it may be tempting to just compare the potential salary increase to the additional debt, I’m afraid that’s an oversimplification. For example, one might conclude that with a $20,000 annual pay increase you would be able to repay the additional $50,000 of debt in just two and a half years. And from then on the extra $20,000 per year would be gravy. But that’s not how it works in the real world.
First, that extra $20,000 per year isn’t guaranteed. A lot could happen over the course of 3 years that could change the ultimate reward. Second, the $20,000 is a before-tax amount so it wouldn’t all be available to pay off the debt. And finally, if you couldn’t afford to apply the entire net pay increase to the extra debt (i.e. you may need the money to live), it could take even longer to pay it off. So the point here is that there’s a good possibility it could take you many years for the extra degree to start paying off financially. But that doesn’t necessarily mean this is a bad idea.
Estimate Your Cash Flow
To help you decide, I encourage you to spend some time with the student loan repayment calculator available on Department of Education’s website. Calculate your potential new loan payments and see what that would do to your monthly budget after your husband graduates. Would it be doable? Or would the extra monthly expense when combined with your other outflows and inflows be a deal-breaker? You see, it’s really not just about comparing the new loans to the new potential income; it’s about how both would factor into your overall financial picture. In some cases it could make a lot of sense and in others, it would be a terrible idea.
Everyone who takes on student loan debt is taking a risk and your situation would be no different. So just be sure to tap deeply into your logical sides to help you weigh whether or not the risk is worth it in your situation.
Thanks so much for your question and best of luck to you both!