20,000 Dollars Under the Sea

More Monday-morning controversy for y’all. Dig in.

“…and how they’re going to pay their rent with her in college and him in kollel I don’t know. And pay off those loans. I love my son-in-law to pieces, but next time we’re going to ask about student debt in the research stage.”

I overheard this line many many years ago at a friend’s sheva brochos. It brought to my attention a potential Big Issue. You know, the kind of thing you red flag in a Potential from the start, along with his/her attending 4+ high schools  or collecting shoulder-mounted SAM launchers as a hobby.

Yeah, I’m talking about those student loans.

Maybe this is not the place to go into Bad4’s Theory on Borrowing, but I’ll sketch it out in brief. There are two types of investments. There’s the gamble investment, like the stock market. You only put in money that you don’t really need. Then there’s insurable investments, like a house or car, that have some intrisic value (they keep you warm and dry). You can borrow against their value, which can also be insured.

College, imho, falls into the gamble investment category. There’s no guarantee that you’re going to get a job simply because you’ve got that piece of paper with the synthetic parchment grain. (Ask everyone who has gone on to graduate school [more debt] because they couldn’t find a job.) The knowledge is worthless without many other qualities that make you hireable. And it has no intrinsic value; try burning it for warmth or holding it between you and the rain. Try buying insurance for it. For what?

(I make a small exception for doctors, surgeons, and anasthesiologists, for whom unemployment exists only as the sort of fairy tale old nurses tell young interns to scare them.)

Yet, many people go fathoms deep in debt for a college degree. Debt that could take them years and years and year to pay off, especially if they have a home and family to support. (And car payments and a mortgage.)

Which brings me ’round to the question: should student debt be up there in the FBI question list? One of those things you ought to know before you go (out)? Is it a Fourth Date Question – for when  the skeletons start coming out of the closet?

Me: “Well I’ve got a blog.”

Him: “I’ve got six digits of students debt.”

Me: “Take me home now.”

Him: “Hey, I was okay with your blog!”

I thought it was just me who has a pathological fear of debt. Certainly everyone seems to think I’m completely nuts for avoiding it like chopped liver. Rationalizations I’ve gotten range from “Well what can you do?” to “It’s the cheapest loan you’re ever going to get! Enjoy it!” So I kept my distates for things with APRs under wraps, along with all my other weirdnesses, like my preference for warm winter jackets and life without a cell phone.

Then I saw this NYTimes article, linked through Orthonomics. Discovery: there are others like me! Someone even broke up over it! I’m out of the closet, folks.

Hi, my name is Bad4, and I have a pathological fear of irrational debt.

When I hear that someone has racked up $50k+ in student loans, I automatically place their IQ a standard deviation left of the mean. Perhaps it’s unfair, but I’d probably need to rack up $50,000 in psychologist bills to eradicate the creepy-crawly, raised-hairs-on-back-of-neck feeling it gives me, and that’s definitely not an investment worth making.

So, is this a serious shidduch issue, or should couples just bite the bullet and figure it out post-chupah?

34 thoughts on “20,000 Dollars Under the Sea

  1. Definitely this should be discussed before the wedding. His debt becomes your debt after you’re married, and you have a right to know what you’re getting into. I wouldn’t refuse to marry a guy with excessive student debt, but since presumably my earnings would be paying it off, too, and since it would deeply affect our life together, I’d want to have some serious discussions about it beforehand. If he’s willing to make sacrifices and live cheaply in order to pay it off as soon as possible, then great! If he also has credit card debt and a loan on a car he couldn’t afford, then maybe financial stability is not a priority for him.

  2. Definitely agree with Anne- something like this needs to be discussed beforehand.
    And about the doctor comment- they have HUGE student loans as well (usually- unless they have a scholarship or worked 2 jobs as well, or something like that) so although they may have a job- it’ll take a LONG time to pay all those loans off. Ask an intern- they don’t make much (comparatively) to the debt they have.

    A couple should discuss how they will pay off those loans together- just like they would discuss rental payments, putting a mortgage on and so on. It goes with the whole ‘having a plan’ idea.

    My own solution? Move to Israel and make Aliyah- free schooling! 😀

  3. with you all the way. not necessary to pasul out of hand, but definitely to discuss and plan around. some people are so blind to reality.

    some comments on your philosophy:

    i agree that a house can be an investment, but a car is really only a ticking time bomb of depreciation. a house can retain its value by adding money to it, but cars have model years and odometers that are etched in stone. imho, it makes more sense to invest in a house that will make you happy to live in, but to pay up-front for a functional vehicle that runs efficiently and carries enough people and/or stuff to where they/it need(s) to go. in short, a car is a sunk cost more than an asset.

    re the stock market- agreed that one shouldn’t ever do it without enough liquidity to get by in the event of a catastrophic failure, and that it takes some technique, but now is the time for young people to build solid portfolios, when risk appetite can be a little higher and the gain potential is much better than a bank.

    re APRs, do you not like savings accounts?

    in general- paying for money = BAD. shoot never to do it.

    the day i started working, i started thanking my parents for refusing to pay for or save for college, claiming tuition had been more than enough and that a cheap education was easy to obtain in NYC b/c we’re fortunate enough to have a great city university system. i haven’t stopped since. look at how many classes of lawyers counted on repaying their debt quickly and can’t. and people are still applying to law school!

    oh, and, um, what kind of supposedly-able-bodied moron learns in kollel while in debt? the hanhala should never let them in, and the parents should refuse support. whenever i get tzedaka solicitations asking to help a poor family who has a ton of expenses and the husband learns, i recycle it. let the husband do his job! mitparnes min hatzedaka is one of the most dishonorable positions there is, and shirkers ruin it for those in real need. and don’t get me started on kollel+public assistance/WIC. better just to steal.

  4. I am still stuck on the idea of 50K college debt. What happened to city/state college, if you can’t afford private? Or, here is a novel thought: if it means so much to parents to send their kids to private college, perhaps they can pay for the student loan? (Yes, I am a parent, and yes, I pay for my kids’ higher education – college and grad school. It can add up to a lot of money, but so did their yeshiva tuition, food bills, etc.)

  5. I’ve owned four houses, all told.

    And I’ve made far more money on the stock market than I ever have on real estate. And that is taking into account tech bubble and the recent recession.

    Housing is not necessarily good debt (see anyone who bought a house at the peak of the recent bubble), college is not necessarily good or bad debt, and the stock market is not a “gamble” (although it is by no means a sure thing).

  6. As I’m not from America, I seem to be lacking some basic assumptions:
    Are there affordable colleges in the States (city/state)? If so, do they offer the coveted degrees in fields such as medicine? If so, is it possible to actually get accepted into these programs? If so, people should definitely go there. No private college is worth the amount of money they charge.
    However, I wouldn’t be quick to ridicule a person with student debt. It means they were adult enough to try and pave their own way and not live off their parents’ generosity. And obviously there are many parents who simply can’t pay their children’s tuition, even if they wanted to.
    Btw, about free tuition for new olim:
    It is indeed one of the nicer benefits for those new to our shores. But it is a bitter pill to swallow for those of us who had to pay for ourselves and take out loans to do so. It may seem like a little by American standards, but on a miniscule Israeli salary it is a formidable burden. One should never take free education for granted, ever.

  7. In general if a guy has student loans, it’s not such a bad thing, b/c the job he gets should be able to pay off the loans eventually. So even if it’s not logical to take out those loans, at least he’s working to pay them off. If he’s learning in Kollel, then it’s just weird. I was taught by my father that all debt is bad, he paid off his mortgage just a few years in, paid for his cars upfront and never took out any loans, even when he was starting a business. I thought this was smart, but I didn’t follow in his footsteps, I leased my cars, bought a house with a 30 year mortgage, racked up some credit card debt and all that bad stuff. I also did a lot of “gambling investments”, like the stock market. Based on my experiences with all that, I have to say neither approach is good. Credit card debt is definitely bad and car leasing is also stupid but not all debt is bad. Mortgages are ok and low interest loans can be a great way to build wealth. Quite a few billionaires built their fortunes by leveraging other peoples money. I also take issue with calling the stock market a gambling investment, historically it provides a 7-10% annual return, that’s not much of a gamble. Educated investing is really not a gamble and it should be a big part of any long term financial plans for someone in their 20’s.

  8. I’m with GP in that why would someone be in kollel if he has student debt? Then what was the point of that education? Another point – how can someone calmly sit by if his parents are choking on his debt? What sort of learning is that worth is his parents can’t sleep at night worrying over foreclosure (someone I know is doing just that)?

    I am also terrified of being in debt. My savings account is being steadily built towards a future home. My debit card is my best friend. If a date confessed to me about a sizable amount owed, visions of Charles Dickens’ debtor’s prisons would float through my mind’s eye. It’s a common malaise talked about on Dr. Phil – once you start borrowing, it’s hard to stop.

  9. What’s the ROI on the debt?

    The PhD in English who is seriously planning a tenure track career at a prestigious university, and already has a few publications under his belt for an impressive CV is a better catch than the one who’s shut up in his room writing the great American novel.

  10. so better to marry someone that didnt go to college and has no debt then marry one that did go to college and has debt? better to be a kollel guy that didnt go to college then a kollel guy that did? here is my take, life entails taking risks and making investments. those that have college debt took a risk and made an investment in themselves. power to them. if a person doesnt come from a well off home but somehow got into harvard, he shouldnt go because of the debt?! thats silly i think. i havent met much people that are floundering in their college debts. most take em, get a job, and pay em off, all be it slowly, but who cares. i dont think college debt should be a deal breaker when it comes to marriage. is he going to be a good husband? yes. is he going to be a good father? yes. is he responsible? yes. is he caring? yes. how do you guys get along? wonderfully. do you see yourself growing old with him? yes. does he have college debt? yes. oh well in that case forget about it, good bye.

  11. If you’re concerned or bothered about it, then the issue is very real for you. Consequently, you are wise to gravitate toward someone who shares your outlook on money. But know that there are legitimate points of view on the other side of the aisle.

    For instance, to play the Devil’s Advocate:

    1) “Mortgage should be paid as soon as possible.” Well, not necessarily. They offer an enormous tax credit. And it may be better to invest the money instead.

    2) “Tax refunds are good.” Tax refunds may mean that you have made a zero-interest loan to Uncle Sam, and that you are not taking home and investing your full pay check owed to you.

    3) “The stock market is tantamount to gambling.” There are many stock and bond investments that are conservative, or do not rely on a single company or sector for their success. Taken as a whole, the market has returned more than 7 – 8% for decades.

    4) “Credit cards are evil.” They can be, yes — particularly to those who are naive, careless, addictive or unlucky. But for many people, if used for important purchases, they can improve cash flow.

    Borrowing or investing is not inherently evil. It simply depends on the person making the decision, their plan of action to repay the debt, and, if in a relationship, how transparent he or she is in making that decision.

  12. if a person doesnt come from a well off home but somehow got into harvard, he shouldnt go because of the debt?! thats silly i think.

    A person who gets into Harvard who isn’t well off will go for FREE (or very cheap)

  13. that is a generalization which is unsubstantiated. i know plenty of guys that are incurring heavy debt to be in such schools as harvard, columbia, nyu etc. they dont come from rich families and have to boot the bill themselves.

  14. Meh. Too much generalization. On average, those with college degrees make more money than those without, even accounting for the initial investment. Does it necessarily make sense to borrow $30,000 to attend DeVry’s online nursing course? Probably not. On the other hand, it could be very profitable to borrow upwards of $200,000 to go to an elite law school with a 99%+ rate of employment of people making $150,000+ the day after graduation.

  15. If your family income is $60,000 or less, you pay ZERO for Harvard. If your family income is $180,000 or less, you pay 1/10th of your family income – it’s some money, but a far cry from the list price of $45,000+ per year in tuition and fees.

    Don’t trust me – look at the Harvard financial aid site.

    Of course, you will have to supply your tax returns to get that benefit – which might be a problem for certain people.

  16. Um, is it just me, or are many people overlooking a middle-of-the-road option: go to college and pay for it up front? Find a college you can afford, get a job, work summers, study hard, earn scholarships, tighten the ol’ belt for four years… Loans aren’t mandatory.

    When I compared a diploma to a car, I wasn’t talking investment as in finance. I was talking investment as in value to the human being. A car is a physical item and stocks are a financial construct. If the world ended tomorrow, you could live in your car but your stocks would be worthless. Yeah, you should invest your surplus income – when you have an income and when you have surplus. That goes for stocks and education.

    And Vox – there’s no such thing as a law school with a 99% employment rate, let alone at salaries of $150k upon graduation, so your point is moot.

  17. the market pay for starting at the top law firms is $160,000 plus bonuses. but the only schools that have 90%+(opportunity) of employment at said firms are Harvard, Yale and Stanford. Columbia(#4) has like 50% and it goes down from there. most students even in the top 20 schools are in big trouble upon graduation. if you’re below that then you’re likely financially messed up for a long time.

  18. Bad4,

    I may have exaggerated slightly, but at some elite law schools (Harvard, Yale and Stanford) it really is almost 99%. If you apply yourself at all, you will get a 160,000 in your first year. Still fantastic schools like NYU and Columbia are struggling a bit now (we are in a recession), but I have it on pretty good authority that they are finding jobs now (at firms) for over 75% of those who want them. Before the recession, even NYU and Columbia were placing anyone who wanted (mostly). Nothing is guaranteed in life, but it’s (or at least, was) a good bet.

    But after the really top firms, it goes sharply downhill. So, regarding your “middle of the road” option – paying to go to a law school you can afford – ironically, that is actually throwing your money away. The 20,000 or whatever Brooklyn or Hofstra Law cost is worthless – it’s impossible to find a job. Your only real chance of making real money is to shell out for a top law school. If you can afford that, fantastic, but if you want to make BigLaw, you have to borrow. Everybody else did.

  19. Too many generalizations, and while no debt is “good”, and debt MUST be discussed prior to marriage (or the couple is headed for serious issues), making absolute rules seems unwise. A high school graduate may have no debt, but he also may have much lower earning power; a college grad may have some debt, but decent earning power; and a grad student may have a lot of debt, but great earning power. [Very worrisome is someone with extremely high debt yet less earning power.] Also – someone who paid their own way and was successful to date can be a great sign for the future, while someone who had Mom & Dad cover their tuition and skated through may fail in a world where it’s about what you do.

    Definitely be wary of debt, but don’t assume that someone who has it is worse off. (Full disclosure: We have relatively low student debt, due to academic scholarships, but would have been better off taking out more student loans for living costs and instead picked up other debt. Find out why someone took out loans and their plans for paying them off, rather than just jotting down a number.)

  20. credit cards can be better friends than debit cards, as they offer rewards and cash back. all one needs is to approach it as if it is a debit card and pay the balance in full each month. low credit limits are also good. i have no clue what the APR is on any of my credit cards, as i plan never to incur it, but have calculated a return of 6.5% on one of them.

    also, it is beyond me why would anyone want to go to a college that costs money if it isn’t a big name. and, as everone before me already said, harvard’s endowment is so large that no one really needs to pay tuition there at all. i think the whole frum college business is overrated. at the very least, it’s a luxury that they try and market as a necessity.

  21. Ezzie: You’re also making a generalization by saying that a higher level of education equals a higher earning power. I know plenty of High School graduates who earn more than most PhDs (I may be a little biased b/c I intend to be one of those).

    GP: I agree with you on the credit cards, but paying off your balance in full every month may not be the best move, b/c it’s not so good for your credit score. The best option would be to have a 0% interest card and carry a 30% balance so your credit score goes up. Even a low interest card might not be so bad when you consider how much you could save on a mortgage by having that higher score.

  22. you make an excellent point. it’s what keeps my credit score under 750. that, and the fact that my combined lines of credit are less than my liquid assets and a fraction of my net worth.

  23. Ivy League =/= guaranteed job.

    In fact, even anesthesiology =/= guaranteed job.

    Also, I find it a tiny bit disturbing the theme of “kochi v’otzem yadi” that those false equations suggest. There are rich plumbers and poor lawyers and ups and downs and anyone who had a “guaranteed” parnassa who then lost it all can confirm this.

    As for the debt, it’s a bit cruel to assume someone is insane for racking up debt. There are many ways such things sneak up on people. If it’s such an issue for you than itm ight nto be worth going into a relationship with that sort of strain.

  24. agreed. but there’s value in not making unsound decisions deliberately, b/c cause and effect is hard to combat. plus, plumbers and other skilled trades have terrific earning potential, and lawyers in the public sector don’t make a ton, so those examples don’t provide much of a הו”א for you to counter.

  25. you make a generalization that only debt that has a physical value can be considered worth having. while i agree that $50,000+ for an undergrad student loan is an exorbitant amount of money. but to pay fro grad school there is definitely a value to it you dont realize, one cannot be a “professional” without further education, and of course nothing is guaranteed even the house can be damaged and not covered by insurance and no what? of course i understand why you may be weary of marrying a guy with all that debt i think it should be looked as if you were lending him money (like your a bank). a bank would generally give loans to people to buy houses and other larger purchases even with 6 figure student loans because it is a good investment unlike say buying a $100,000 car when you make 25k a year after going to grad school a person’s expectation of getting a job is higher and probably better paying (a lawyer cant become a lawyer with out law school.) it is definitely something to be spoken about before marriage and if you feel that for him specifically to take a loan like that was stupid then end it, however, if he seems like the guy who knows what he’s doing you cant just hang out to dry.

  26. I look at college as a means to an end. Some jobs require degrees, and then there is no way around it. If you don’t have the money to pay upfront (and even with working in summers, getting a job, going to a state university, scholarships, etc, many people just don’t have the cash), then there is no way around it, you have to borrow the money. However, if you are getting a degree in a content area just because, say, you like history or English (but don’t have plans to teach or aren’t cut out for education related fields) it seems like a waste to go into debt for that. I know many people who got an undergrad degree in psychology but didn’t want to go to graduate school–well, you can’t do anything in that field with just a BA, so they spent a lot of money for a degree that they have never ended up using, even years later. I’ve also dated guys who have/are going for advanced degrees in what I’d consider “indulgent” areas, because the chance of getting a job with those qualifications are so few/limited to a very few locations, such as a doctorate in 19th century Jewish literature or things of that nature. I mean, I’d probably find that very interesting, too, if I’d take a class in that, but at $350 a credit (which is what the cost per grad school credit must be close to by now), I find that to be a frivolous way to spend your time (some of these guys were over 30 and not because they’d taken time off to go to yeshiva or work) as well as money.

    As long as the person otherwise seems financially responsible, I don’t think student debt (within reason) is a good reason to not even consider a shidduch. Anyway, as my father said to me when I was trying to decide whether to go ahead and borrow money so I could go to grad school full time (for my field, a master’s is an eventual reguirement), don’t let the money hold you back–you will never be totally debt-free–that’s just the reality of having a family/buying a car/buying a house–for the average person. Sure, you hear of the person who only deals in cash and wrote out a check on the spot for a car, etc. but those are the exceptions.

  27. Instead of immediately dumping him, why don’t you try to work out a budget together? For example, over here
    it says you need to figure $10 per month for each $1000 of student debt. That’s $1000 per month for $100,000 of debt which will not necessarily break the budget. Figure out how many years it’s going to take to get a downpayment on a house, a car, or whatever. Theoretically a famous person like Bad4 could get enough for a downpayment on a condo just from wedding presents. While it’s true that when you factor in the cost of babies, it probably won’t work, don’t give up on a good shidduch without doing the math.
    No matter how rich or how poor he is, if you can’t come up with some sort of vague, general agreement as to how to live within your means, you are going to fight over money – or go bankrupt together.

  28. Ezzie: You’re also making a generalization by saying that a higher level of education equals a higher earning power. I know plenty of High School graduates who earn more than most PhDs (I may be a little biased b/c I intend to be one of those).

    ? I said that one should be wary of those whose higher education doesn’t net them higher salaries. But statistically, yes, higher education usually translates to higher earning power, particularly if you go field by field.

  29. Oh, BJG. Shady, shady, shady.

    And PhD’s don’t have amazingly great earning power. Most PhD’s go into academic fields, or teaching. A PhD isn’t an MD or any sort of guarantor of a job.

  30. Uh, to the last commenter, my guess is that kisarita was making a joke.

    To the subject at hand, the thing about student loans is that they are a pretty benign form of loan to pay back. there are all sorts of deferments for the the first couple of years out of school and then the payments are small, even if the loan is huge. I have loans from medical school and they aren’t causing a headache in the slightest. Apartment, house and car dealers have never said boo when they discovered that I owe upwards of $150K. It’s not debt, they seem to feel. It’s student loans! The same amt in credit card debt, I think, is another kettle of fish.

    If, however, you have a young man/woman who shows the fortitude to do as Bad4 suggests and goes to an affordable college specifically to avoid the debt, I think that’s laudable. But the appeal of a brand-name university, whether it is just the pride issue or the possibly real issue of better teachers or wider opportunities is not something to poo-poo just b/c of money. Of course, everyone should have some sort of limit, but in principle it should be OK.

    (I agree with Bad4 in terms of credit cards – my wife and I also pay off the whole balance each month, and always have. APR? Not for us!)

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