Student rates

New York, Austin, San Francisco and DC

Are you debating whether to take out student loans to help pay for your college or higher education? Wondering if student loans are worth it in the long run? The benefits of student loan debt have been widely debated for years, long before the last two election cycles.

We decided to take a different approach to this question by looking at what life is like with and without student loans, and the practical cost of living in four major US cities to see how student debt affects lifestyle.

Living on student loans

A necessary evil

Student loans are what some like to call a necessary evil because most people need them to pay for their college education. The bad is the monthly payment you have after completing your studies. For the 2020-2021 school year, annual private school tuition was estimated at $37,600, while public school tuition was approximately $9,400. Therefore, the total tuition cost for four years of study is $150,400 for private schools and $37,600 for public schools.

Even if you consider scholarships and grants, many students will struggle to pay for their education without going into debt.

Higher education and better incomes

Most people who have earned college degrees earn a higher lifetime income. Studies show that those with a college education have 57% higher incomes than high school graduates. In many cases, the advantages of a college education outweigh the disadvantages of living on student loans. This is especially true if the expected annual salary for someone with your degree is greater than the total amount of student loans you have taken out.

A significant risk here, however, is not being able to find work in your chosen field of study, in which case your earnings would almost certainly be lower than expected. Also, if you change careers and have to go back to school, it will seriously affect your ability to get by financially.

Good credit report

Student loans can help students and recent graduates build their credit history and credit score when used responsibly. By responsibly making your student loan payments each month, you show potential creditors that you have a low risk of defaulting on future loans, including a mortgage, car loan, etc.

If you were to take out a student loan that you can’t repay, it will hurt your credit, make it harder to qualify for funding, and the interest rate will be much higher, costing you more money in the long run. .

Delay major life events

According to the Federal Reserve, the average monthly student debt payment is $393. This monthly payment makes it difficult for many people to buy their first home. The Fed noted that “a $1,000 increase in student loan debt lowers the homeownership rate by 1.5 percentage points.” This is based on those who attended a four-year public school. If we take the median student debt of $17,000, that time frame rises to about 3.5 years.

Student loan debt even deters some from getting married and starting families because they don’t want the burden of debt to weigh on them as they take on family responsibilities. Studies show a 1% marriage delay for every $1,000 in debt. This results in a delay of 17% on average.

Cost of living in the United States

Where you live will have a big impact on how easily you can repay your student loan. Below is a breakdown of popular cities with favorable labor markets for recent college graduates, along with the annual salary you should afford to live there.

All figures are gross income, not net, so taxes will also play a part.

New York City

Rent for a one-bedroom apartment in New York averages $2,045 per month. The standard measure to use to see if you can survive financially is that your housing costs do not exceed 30% of your gross income. According to this guideline, you should earn at least $82,000 a year to afford housing in New York.

When you add the average monthly student loan payment of $393, you need to increase that salary to at least $86,600.

Austin, TX

To live in Austin, TX, you need to earn about $60,000 per year, using the 30% rule above. The average monthly rent for a one-bedroom apartment is $1,519.

After accounting for student loans, your annual income should increase to nearly $66,000.

San Francisco

San Francisco is consistently at the top of the most expensive cities to live in the United States. The average rent for a one-bedroom apartment is $2,343. When you annualize this and budget 30% of your income for this cost, you need a salary of $93,720.

Adding student loans, you need an income of $98,500.

washington d.c.

Washington, DC is another expensive city to live in, especially when living within the city limits.

The average one-bedroom apartment has a monthly rent of $2,508. That means you need a whopping $100,320 straight out of college to survive before student loan repayment and $105,120 with student loans.

Although these figures are high, it is important to remember that the number of apartment rentals is average, which means that there are both cheaper apartments and more expensive apartments.

Plus, salary estimates are just for you. They do not include hospitality or other discretionary expenses. In other words, you are barely getting by with the earnings shown.

Finally, you should also remember that the $393 monthly payment for student loans is average. Many people have higher monthly payments and therefore must earn a much higher salary.

For these reasons, many people in various cities across the country are struggling with student loan debt.

Thinking of skipping college?

Forgoing the traditional college experience is more than a financial decision, but there is definitely a monetary argument to be made here.

Start earning income sooner

You can start earning income sooner if you skip college and enter the workforce right after graduating from high school. Compare that to those who attend college for four years and have a solid work history, whereas a recent graduate may only have a degree.

Of course, as mentioned earlier, your salary will likely be lower down the road, which will eventually put you behind the earnings of a college graduate.

Boost retirement savings

When you start working right away, you can start investing in a 401k plan or a traditional or Roth IRA. The ability to start saving early has a huge advantage. For example, if you invest $300 per month for your retirement from age 18 to 65, earning an average return of 8%, you end up with $1.7 million. If you invest the same $300 between age 22 and 65, earning that same 8% per year, you end up with $1.2 million, or $500,000 less.

The opportunity cost of working and saving for those four years is higher than most 20-somethings realize.

Lower net worth

When you have lower incomes, you cannot save as much money as someone with higher incomes. Even if you consider a college graduate to pay off their student loan debt, they still have a higher long-term net worth compared to those who did not attend college.

Does having student loans prevent people from saving for retirement?

Having student loans will certainly force people to save less (or save nothing at all) for their retirement. This is a major problem because the longer you invest your money, the more it can accumulate and grow, so paying off your current student loan is costing you a lot of money in your golden years.

For example, let’s say you put $250 a month into a retirement account from age 22 to 65, earning 8% per year. When you retire, you have just over a million dollars. However, if you wait to start saving until you pay off your student loans a decade later and save $250 a month from age 32 to 65, earning 8% a year, you end up with nearly $473,000. .

Saving something for retirement is better than saving nothing. So even if you have student loan debt, consider contributing to your 401k. Even if you save $100 a month, that amount can grow and increase your nest egg so that when you can invest more money for retirement, you’re not starting from scratch.

Conclusion

For most students, taking out a loan is unavoidable. For many students, there would be no way to afford the high cost of college without a loan. But you shouldn’t rely on them as the only way to cover your education costs.

Try to think outside the box when considering tuition coverage so that you only have to withdraw the minimum amount required. This could mean working after high school and attending college part-time in the evenings. In this case, you may be able to ask your employer to pay part of your tuition fees.

Other options include starting at a community college, living at home rather than on campus, and/or taking advantage of scholarships and grants. The more you can do to keep your total loan amount to a minimum, the less burdensome your monthly student loan payment will be after you graduate.

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