I was recently in the Student Union at Boston University chatting with a couple of students about their majors
and the school. Most BU students seem to be nice, but these two were a bit snobby. Bad
seeds, I guess. During the conversation, they mentioned that they were majoring “Nutrition”. I raised my eyebrow at
the time, but didn't think too much about it.
It wasn't until later that I realized what had struck me:
Boston University is one of the most expensive schools in the country. If you factor in room and
board, it rings to the tune of $42,000 per year (2005/2006), or $170,000 total! Boston is also an
expensive city to live in, and many students take out substantially more in loans just to cover normal, nonacademic
expenses. Therefore, we can assume the total bill for four years to be in excess of $200,000.
Even if one pays cash, keep in mind that the cash growth rate is similar to the loan money if
placed in an appropriate security. A person taking out a loan owes a similar amount of money to
the cash growth that's been lost over time.
Now college students tend to be optimistic, which is a
good thing, but occassionally there needs to be a dose of reality (aka 'life').
REALITY: Nutrionists earn somewhere between $35
and $53K per year. Superficially, a student might think, “well, it will only take me 4 years to pay
back that $200K loan as a nutritionist/dietitian”. Unfortunately, there's a few things he or she might be forgetting:
Number 1 is taxes , which will walk away with about 25% of our nutritionists' salaries almost right off the
top. The other things generally unaccounted for are:
2. Living Costs (Food, housing, insurance, automotive).
3. Interest on
the loan, in addition to the loan itself.
4. Job market and availability of employment.
Let's continue to use
our Nutritionists by assuming that our two friends have no problem finding a job, and immediately land an average
salary of $39,000. Let's also suppose that they suddenly learn how to be frugal and keep costs down.
In Boston, their favorite city, they choose modest housing and utility expenses, which account for $1000 per month, or
$12,000 per year (Boston housing can range anywhere from $1000-$3000/mo). After Federal taxes for their tax bracket, our
two nutritionists are left with only about $20K per year of profit. “Yay!” they exclaim to each other,
“We can pay off our $200,000 student loans in only 10 years!” Then they go out for dinner
and subtract an extra $3K from their salary for food and other expenses. Suppose they devote all 17K each
year to paying off the loan — with interest (about 6.8%) it will take almost *25 YEARS* to pay
off the loan. The amount that the two nutritionists owe grows every year that it is not paid
off, so that in 25 years, they pay almost $200,000 EXTRA just in interest.
Lets be practical.
Nobody devotes 100% of their income and lives like a pauper to pay off a loan unless they owe it
to the mafia or a loan shark. When in possession of an extra $20K, most people find ways
to spend it on marriage, a house, or other luxuries.
If you plan to major in Nutrition or some
other mostly low-salary field, it may be reasonable to attend a small college or state school with a total cost
of $40,000 (or if you have substantial scholarships), but certainly not one that costs $200,000. You do not want
the growth on the interest to exceed your salary.
It cannot possibly be stressed enough how important it is to
choose a major with an aggregate earning power higher than the cost of tuition. If you pay more for
school than you can possibly earn, you are wasting money on some “play time” and you are saddling yourself and
your family with a debt that will last for the rest of your lives.
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by Beracah Yankama