For some people, money buys happiness. I don’t mean that in a judgmental way. I mean truly, for some people, the accumulation of wealth is the key to their satisfaction in life. These particular individuals will try to attain the highest-paying jobs in business, law, or medicine to pay down their student loans (if they have any) as quickly as possible so that they can buy that nice house, get that nice car, and live the dream. If that’s you, and that model works for you, that’s great. Go for it.
For many others, however, life is a little more complicated. We all want to be financially secure, but many of us want to be doing work that not only brings us some level of challenge and excitement and happiness, but also makes some sort of positive difference in the world. Unfortunately, this occupational idealism can be at odds with the realities of market forces and the American higher education system. In other words, a good education here is astronomically expensive, and many jobs that serve the public interest just don’t pay well.
The traditional ways of dealing with this reality was either sacrificing your ideals and “selling out” in order to get that high-paying job that you hate so you can pay down those loans and switch careers later, or alternatively, being the idealistic martyr by obtaining your dream job in government or at a non-profit, but living in a cardboard box with Ramen for dinner every night so you can pay your monthly student loan bills. Well, it really doesn’t have to be that way.
Today, you’ve got more options than a student borrower did not too long ago, thanks in part to the College Cost Reduction and Access Act of 2007. Today, we have income-based repayment for federal student loans, which can cap your monthly payment at a percentage of your income, regardless of how much federal student loan debt you have. We have public service loan forgiveness which provides total federal student loan forgiveness after 10 years of on-time payments if you work for federal, state, or local government, or a non-profit organization. Certain federal student loans are also eligible for complete cancellation if you have a public-interest job that helps certain underserved communities. Many schools, particularly law schools and other professional schools (as well as some employers), also offer repayment assistance to recent graduates. While the eligibility for these programs vary, it essentially works like this: if you have a lot of student loans, but you take a relatively low-paying job working for government or non-profit, a school or employer will cut you an annual check. The money may be a grant, or start off as a loan that converts to a grant over time, but ultimately, it helps you pay your student loan bills now.
That’s a lot of info. Let me show you how this really can pay off in a concrete way. Let’s take two people, Sally and Joe. They go to the same graduate school, and they each have about $100,000 in federal student loans by the time that they graduate.
Sally decides to take a big, high-paying corporate job which starts her off at $120,000/year in salary. Joe, on the other hand, takes a job in local government, making $40,000/year in salary. Assuming Sally gets on the “Standard” plan for federal loan repayment, Sally will pay $1,150 per month over 10 years, and at the end of 10 years, she will have paid nearly $140,000 in principal and interest payments on her original federal loans.
Joe, on the other hand, will be eligible for Income-Based Repayment, so he’ll only have to pay $300 per month based on his salary. What’s more, if he stays in his public-interest job for 10 years and does not miss a payment, he only will have paid about $36,000 after 10 years– and he can get the remaining $64,000 completely forgiven under the federal Public Service Loan Forgiveness program. Keep in mind, this is not even taking into account Joe’s eligibility for loan cancellation or repayment assistance programs, which could lower his payments even more.
Now look. It is important to emphasize that many of the benefits I’ve just talked about (particularly loan forgiveness and income-based repayment) are only applicable for federal student loans. If you’ve financed your education mostly through private loans, your options are significantly more limited. This is particularly true for people with only a Bachelor’s degree, since federal student loans are limited for undergraduates. (In an upcoming post, I’ll be talking about the increased availability of federal student loans for graduate school students, and why it may be worth it to save money by going to an inexpensive college, and subsequently going to an excellent graduate school via federal student loans.)
Bottom line, though, is that clearly, even with all the recent bad news about the economy, the job market, and the “student loan bubble,” it is far easier today to get your public interest dream job and still meet your student loan obligations. In fact, in certain cases it may actually save you money. You may not have to choose between selling out or living in a box. You can have financial security and a job that satisfies you. You can have your cake and eat it too.