Is higher education a good option to defer payments?
My son graduated from college in May and couldn’t find a job. He lives at home with me and has about $ 55,000 in student loans, which he will have to start paying off in January. We discussed his return to graduate school in order to wait until the end of the labor market, so that he could get a job worthy of his degree. In addition, if he does, he will be able to defer his loans, thus avoiding having to repay those loans for the time being. Do you think this is a good idea?
Beth; Berkeley, California
When I think of all the different challenges that different groups of people are going through right now in the face of a global pandemic and the deep American recession, young adults early in their careers always find themselves at the top of my list. Of course, that doesn’t mean that I don’t sympathize with all of the other bands, it just means that this particular band has some incredibly ugly challenges that are more easily quantified.
Collectively, the group of people who have completed their last year of planned schooling still find themselves in the vagaries of the job market. During times of low unemployment they fit fairly seamlessly into the workforce, and during times when jobs are as hard to find as disinfectant wipes, new graduates are inundated with regrets and too much free time. .
When jobs are scarce, it is very difficult for young people to launch their careers. This is especially difficult when student loans are part of the equation. Starting your career with negative net worth, while difficult, is now part of the American experience, whether we like it or not. However, doing it in a depressed job market is really scary. It forces you to distill your problems down to the most essential level.
Beth, your son, and arguably millions of other recent graduates, the main challenge is not the lack of jobs. I know it’s what it feels like, but when you summarize her challenges, lack of income isn’t the root of her problem – her $ 55,000 debt is the problem.
To better understand why, let’s take a look at a hypothetical peer of your son, who also can’t find a job. But for this person, student loans are not a problem. She does not have any. Like your son, she lives at home with her mother, but she doesn’t have the pressure of student loans to force her hand. Theoretically, she can wait until the end of the labor market and not be worse off financially for usury.
Your son cannot wait until the labor market is over because he has $ 55,000 in the hole and his obligation to start making payments begins in January. He must act. This is exactly why you both had the idea of temporarily dodging his payment obligations by sending him off to college. But if you send him to college, his financial problems will get worse, not better.
Not only will he take on more debt, but his original debt of $ 55,000, which he tries to avoid paying, will continue to accrue interest. His debt will at least double, as will his payment obligations. What about the job market? Who knows. Your son’s lack of employment is not due to a lack of education. Therefore, adding more education will not solve its problem. Remember, the problem is debt, not lack of employment.
The best option for your son is to find a job, whether in his field of study or not. Frankly, he only needs to earn enough money to pay off his student loan obligation, which will likely be an income-based repayment (IBR) and transportation costs to get to work. As the labor market stabilizes, he can then try to enter his field of study. If he were to go to graduate school, he would also try to enter his field of study at a later date, but his financial reality would be much worse then.
Getting out of the obligation to pay your debt by taking on more debt makes no sense. The sooner he accepts this, the sooner he can commit to paying off the loans, with any kind of employment income, in January.
Peter Dunn is an author, speaker and radio host, and he has a free podcast: “Million Dollar Plan”. Have a question for Pete the Planner? Email him at [email protected]. The views and opinions expressed in this column are those of the author and do not necessarily reflect those of USA TODAY.