What Color Is Your Parachute? (21 page)

• Third, determine the ROI (return on investment). What will your education or training cost? What is the starting salary for the jobs you want? How long will it take you to pay off your education debts? Will you earn enough to save, start a retirement account, pay down your student loans, and pay other bills?

The Financial Realities of College

It may seem odd to bring up the topic of finances so early in this chapter, but the financial realities of college affect your life not only while you’re in college but also—if you borrow money for school expenses or accumulate credit card debt—after college. (And if your parents are paying for part or all of your education, it affects their lives—and possibly their ability to retire—as well.)

SOME STARTING SALARIES FOR RECENT COLLEGE GRADUATES
*

Chemical engineering: $64,902

Electrical engineering: $60,125

Computer science: $58,837

Accounting: $48,377

Information sciences: $52,089

Finance: $49,940

Marketing: $43,325

History: $37,861

English: $34,704

Psychology: $34,284

*
Averages from the National Association of Colleges and Employers, 2009.

You know, of course, that it costs money to go to college. Many people assume that any and all college degrees mean increased earnings when they join the workforce. Some people will even tell you that you must get a college degree, “no matter what it costs.” Don’t listen. These well-meaning people won’t be the ones paying off your student loans. Unless there is no alternative and you need to borrow only a small amount, avoid private student loans. They are not regulated by the government and don’t qualify for federal repayment programs. Private loans have no reasonable cap on the interest and fees you can be charged.

There are many websites at which you can learn about student loans. Some are listed at the end of this chapter. One financial reality you need to know is the probable starting salaries for the jobs you want. Your starting salary determines how much you can afford to borrow to finish your degree or training. Once you know the likely starting salaries for jobs that interest you, take that number, divide it by three, and multiply it by two. The resulting number is the total amount you can afford to borrow. (Here’s another case for which the research you’ve done on your preferred career fields and dream jobs is important. Although you may not know exactly what your salary will be, you’ll at least have a ballpark figure.)

THE TWO-THIRDS FORMULA

Don’t take on too much debt. Most students would be smart to limit their total borrowing to no more than two-thirds of the annual salary they expect to make in their first year after college. If you’re at or near that limit and haven’t finished your schooling, consider transferring to a cheaper college or taking a year off to work and pay down your loans.

—LIZ PULLIAM WESTON, MSN Money Central

Let’s say that both you and your college roommate pay the same tuition, $87,500 total. Completing your degrees takes you both five years at a cost of $17,500 per year. You each borrow $23,000 in student loans. Your roommate graduates with a degree in structural engineering. She accepts a job with an annual salary of $50,745. Your degree is in exercise physiology. The best job offer you’ve gotten so far is for twenty-one hours a week at $12.25 an hour. You hope to pick up another part-time job and cobble together an annual salary of about $26,000 a year. How does your financial situation compare with that of your roommate? If your first job pays half what your roommate earns, your roommate’s student loans will be paid off long before yours will. That $23,000 can double in less than ten years through charges for late or missed payments. If you have to pay $350 to $500 a month on your
debt, how will that affect where you live, what car you drive, and what you can afford to do in your free time?

College debt is a major issue for college students and their parents. About a third of college graduates leave school not just in debt but in serious financial difficulty. (According to college officials, more students drop out of college due to debt than due to bad grades.) In today’s economy, grads who don’t take the time to make career contacts and select job targets before graduation are extremely vulnerable. (We’ll look at some specific things you can do to make yourself more marketable later in this chapter.)

A FINANCIAL REALITY CHECK

• By their senior year, college students have accumulated an average credit card debt of $4,138 spread over five different credit cards (source:
USA Today
, April 13, 2009). If you make minimum payments at 12 percent interest (many companies charge much higher rates), it will take nearly ten years and over $2,000 in interest charges and fees to pay off your debts (source:
www.bankrate.com
).

• In 2009, 65 percent of graduating seniors had student loans. The median amount (half the students had borrowed more, half had borrowed less) was $22,500 (source:
New York Times
, April 18, 2009).

• In 2009, 80 percent of college grads moved back home (source:
Collegegrad.com
, July 22, 2009). The reasons included both debt and their failure to make career connections while in college.

Student
debt is something that grew very quickly and under the radar. People need to approach college like they approach purchasing a car. Different people can afford different models. Don’t be deterred from going to college, but students need to be smart shoppers.

—ANYA KAMENETZ, journalist and author of
Generation Debt