Student Loans Can Be Worth Every Penny

Don't let the headlines fool you...a college education is still well worth the cost

Jul 26, 2014 at 11:45AM

According to a recent report by the Wall Street Journal, the average 2014 college graduate with student loans owes $33,000, an all-time high. This is more than 12% higher than the average for 2012 graduates, which has led some in the media to label college as "unaffordable" or even to tuition itself as a "bubble."


flickr/ 401(k) 2012

Whether or not tuition costs and the resulting indebtedness that comes with it continue to climb at these rates is anyone's guess at this point. Easy student loan access and larger applicant pools every year are giving colleges little incentive to stop the tuition hikes. However, despite the large debt loads, it still appears that college is worth the cost. Here are a few reasons why borrowing to finance your education is well worth it, and some situations when it's not.

You'll make it back and then some
According to a study by Georgetown University, the average college graduate can expect to earn $2.3 million over their lifetime, and this jumps to $2.7 million with a master's degree. With just a high school diploma, lifetime earning expectancy plummets to just $1.3 million. All of a sudden, being $30,000 in debt doesn't seem like such a bad deal.

The median income for young adults (ages 25-34) is just $30,000 with a high school diploma, $46,900 with a bachelor's degree, and $59,600 with a master's or higher, according to the national center for educational statistics.

If you have the average student loan debt of $33,000, you can expect monthly payments of about $380 under the standard 10-year repayment plan, or $4,560 per year. So, the difference in salary more than makes up for the cost to pay off your debt. And bear in mind there are extended and income-based repayment plans which could make your actual payments much lower. The point is that you're much better off borrowing and going to school than going right into the workforce after high school.

And, some majors have much higher salaries, making the loans well worth the cost. To name a few, accounting majors average a starting salary of nearly $55,000, computer engineering majors $58,000, and the average electrical engineering major starts at more than $60,000.

But what if you get a low-paying job?
Sure it's worth it for engineers and accountants, but what about for students who aspire to careers with more modest salaries?

There are a handful of programs in place to make student loans even more affordable. For instance, the Pay As You Earn plan limits your student loan payments to just 10% of your discretionary income, and forgives any remaining loan balance after 20 years.

And, if you work in a public service career, such as teaching in a public school, law enforcement, social work, or many other non-profit careers, you could take advantage of the Public Service Loan Forgiveness option that takes care of the rest of your loan balance after just 10 years. For teachers, the deal is even sweeter, with an opportunity to have some of the loans forgiven after five years at certain public schools.

So, if getting a master's degree to qualify for your dream job will put you $70,000 in debt when the job only pays $35,000, don't worry. The actual amount you end up repaying should be much less than you borrowed.

The job security is nice
While the unemployment rate for very recent graduates is a little high (about 8.5%), once you land that first job, your employment outlook is much brighter with a degree.

The unemployment rate for all college graduates over 25 is just 3.3%, much less than the national rate of 6.1%. As you can see, the more educated you are, the better the unemployment picture is looking.

What it all means to you
Whenever you see a news headline about the "Student debt crisis" or the "tuition bubble", take it with a grain of salt.

Tuition is much higher than it used to be, but a college education is well worth what it costs to get it. And, for those who end up earning less money or have trouble finding jobs, there are several ways to lessen the burden of student loan debt.

The takeaway here is that no matter what you read, don't let the thought of taking out student loans prevent you from pursuing a college education.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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