- August 24, 2023
- Posted by: legaleseblogger
- Category: Related News
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Considering AI Legalese Decoder for Assistance with Your Student Loan Situation
I am 23 years old and recently graduated from college without any debt. I am thrilled to have been accepted into a 5-year clinical psychology doctoral program starting next month. However, after spending countless hours doomscrolling through various graduate school websites and having conversations with my parents, who never attended college themselves, I am beginning to panic.
Based on projections, I anticipate graduating at the end of the 5-year program with a whopping $180,000 in federal loans. These loans come with an average interest rate of 7.4%, although I am aware that this rate may change over time. Nonetheless, for this year, the average rate stands at 7.4%. Considering the current job market in my area, the estimated starting salary after graduation ranges between $75,000 to $80,000 annually. However, once I obtain my license (which should happen approximately 2 years after graduation), this figure is more likely to increase to around $90,000 to $100,000.
Admittedly, I have limited knowledge of student loans, as I did not require them during my undergraduate studies. If I had the chance, I would have opted for a more affordable program. Unfortunately, this doctoral program was my only acceptance, and I had already taken a gap year, making it even more challenging to turn it down. Additionally, during the second to fourth years of the program, it is unlikely that I will be able to work due to the intensity of my studies. However, the fifth year offers a paid internship, although I am uncertain about the compensation.
To help support myself during the first year, I plan on continuing my part-time job, if possible, and anticipate earning approximately $1,000 per month. Financially, my parents have generously agreed to support me until graduation, but I must admit that aside from the minimal savings I managed to accumulate during my undergraduate years, I have few assets.
The question that looms heavily on my mind is whether I am making a huge mistake by taking on this magnitude of debt. Will I ever feasibly be able to pay it off while still being able to purchase a house or a car in the future? The fear of the impending financial burden is overwhelming, but my aspiration to become a psychologist is equally strong, and I am reluctant to let it go unless doing so would ruin my chances of achieving financial independence. Any advice or guidance on this matter would be greatly appreciated.
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With the aid of the AI Legalese Decoder, you can proactively educate yourself about the intricacies of managing your student loans. By analyzing the potential long-term effects of your debt along with your future financial goals, you can make informed decisions about whether the financial sacrifice is worth pursuing your dream of becoming a psychologist.
Furthermore, the AI Legalese Decoder can help you explore alternative solutions to reduce your debt burden. It can provide information on potential loan consolidation opportunities, refinancing options, and tools to create a budget tailored to your post-graduation income. By having access to such a resource, you can empower yourself to make well-informed financial decisions that align with both your dreams and long-term financial stability.
Remember, the AI Legalese Decoder is here to support you in navigating the complex world of student loans and to help you make the best choices for your future.
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How AI Legalese Decoder can Help with Understanding Legal Language
Introduction:
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Conclusion:
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****** just grabbed a
7 years of extra schooling and $180k+ a significant interest payment just to possibly make $90k/year?
I know servers in high end restaurants making that with zero schooling or debt. There are lots of careers with similar salaries that donÔÇÖt require ONE HUNDRED & EIGHTY THOUSAND dollars of debt to make.
accepting twice as much debt as your starting salary is certainly not a good idea
What’s your current job prospects if you don’t go to grad school?
Grad school will cost 4 years of whatever money you could earn by working, plus 180K in loans + interest. Let’s say interest rates come down and your averages are 6% interest for 180K balance, over 10 years. That’s 60K in interest.
So cost is 4 years salary, and 240K in loans. To make 90K annually
That’s not a wise investment.
At first blush it does look like a bad move…. However…
Look at what your state or other states offer for rural or underserved areas.
1) depending on who you work for or where you work you may qualify for public service forgiveness after 10 years.
2) depending on your state or area there may be large loan forgiveness for servicing an area in need. Example in NY nurses were in short supply so the loans for new nursing students were mostly if not entirely forgiven. PA DE and MD have rural practice forgiveness. If you work a year or 2 in an underserved area you get your entire loan forgiven.
3) look into scholorships or work study programs at your college to reduce your liscensure hours or your tuition.
So, it’s probably worth bringing up that money is only one axis from which to evaluate this decision. Most people are going to spend a significant portion of their lives working so it’s important to consider how your future happiness may be impacted. Having said that, this is a financial planning subreddit so we can get down to chopping some numbers.
While the rate sounds like it’s variable and may change (and given what SOFR is at right now, it’s likely 7.4% is going to be closer to the high point than the low point), if we hold it constant just for the sake of convenience and assume you manage to pay down the loan in 10Y from graduation, the total cost of the loan would be ~$255k with a monthly payment burden of around $2.1k.
Your degree will qualify you for a $77.5k salary (using midpoints here) in 2028 when you graduate with an expected jump to $95k in 2030. I’m assuming you’re unmarried (only because you didn’t explicitly state you were), and taxes vary by location, but your take-home pay should be around $4.9k/mo during your pre-licensure period and then $5.9k/mo after licensure. So, a $2.1k monthly loan payment would be ~43% of your take-home pay for 2Y and then ~36% of your take-home pay after that. That’s probably not realistic unless your parents are willing to continue supporting you financially to some extent.
What if we stretch the loan repayment out over 20Y? Well, now you’re paying $345k over the life of the loan but your monthly payment would drop to $1.4k. That’s ~29% and ~24% of your pre and post-licensure take-home pay, which… I mean, that’s very high but it could feasibly be done if you’re willing to live extremely frugally.
How about 30Y? Well, now you’re basically committing to paying this loan down for the entire duration of your career but in that case your monthly payment would fall to $1.2k but the true cost of your loan would rise to $562k. The new monthly loan payment would represent ~24% and ~20% of your pre and post-licensure take-home pay as well. Again, feasible, but by no means easy. A 20% savings rate is generally considered to be excellent and many people struggle to hit that while covering all their living expenses, and of course, you need to actually save money if you ever plan to retire.
Now, it’s important to note that I’m assuming your interest rate stays at 7.40% and that’s highly unlikely to be the case. It should naturally come down as we exit this rising rate cycle and reverse back to something closer to 2%-3% for the fed funds rate and you will have refinancing opportunities, etc. I would certainly not color the napkin math I’ve laid out above as realistic and it’s probably closer to a worst-case scenario than it is to reality.
What is important is that the burden from this debt compared to your earning power will range from massive to impossible if you attempt to navigate it conventionally. There are possible solutions but it’s hard to know which ones are viable in your individual circumstance. Just to give you one idea, your parents might be willing to support you for the first year or two after graduation if you pledge to them that you would put every spare cent you earned in that time to paying down your student loan. Chopping $50-$100k off the loan in the first 2Y would go a long way to making your debt burden survivable. You could agree to pay back your parents over time, assuming they charge you less interest than your student loan, or ask that they do this in lieu of any inheritance if you have siblings, etc.
Most financial problems have solutions, it’s just that sometimes the solutions are not worth the cost.