Going through life, and especially college, without going into debt can be quite the challenge. The average debt of college students (from 2010) is around $25,000. While that may not sound like a lot to some, imagine starting out your adult life already owing $25,000! It’s no wonder why so many college graduates are returning home to live with their parents. Some people are fortunate to graduate from college debt free, while others are not. Seeing the different outcomes forces me to ask why some graduate with debt and others not.
What’s the determining factor between those with debt and those without?
It’s impossible to pin down one answer to this question. It could be the difference between getting scholarships (or not), coming from a wealthy family (or lower class family), or working your way through school. I was fortunate to graduate college debt free through a lot of hard work and frugal living. I got some scholarships, but had to make up the difference. Growing up, I knew that it wasn’t a good idea to graduate with a lot of debt. $25,000 can cripple a person and leave them stuck paying off their debt for over a decade. It has been part of who I am ever since. I don’t ever want to take out a loan.
As it turns out, I am quite different from other people my age. I am even quite different from some of my closest friends. My friend who I will call Barry, also graduated from college the same year as me. He went to an top-ranked school and ended up going to the same grad school as me. That’s how we met. The difference between him and me is that he graduated with his bachelor’s degree with over $30,000 in student loans. To make matters worse, he financed his graduate education as well. Now that we are both practically done with our degrees, I thought I would track the different approaches to living a life with or without debt. I am averse to debt, while it seems Barry is married to it.
Option 1 – Using Student Loans
As I mentioned, Barry graduated with $30,000 in debt before graduate school. He went to a graduate school that cost him $10,000 in tuition and fees plus housing costs (an additional $11,000 per year). He enrolled in a two-year program and was determined to finish in that time. This meant not working more than a few hours each week so he could focus on his studies. While he was married, his wife had a low paying job for the area and only covered about half of the living expenses. This is what his debt progression looked like:
Undergraduate Loans: $30,000
Graduate Degree (2 years): $30,000
In a matter of two years, Barry graduated with his Masters with an additional $30,000 in debt, or $60,000 total. He was forced to get a job, instead of follow his dreams and is now working a job, where he hates his boss and has no option to advance in the company. He is stuck in the area for a few more years and it is very likely that he will stay at his current job to continue paying off his debt. To add insult to injury, he needed a new car for he and his wife after graduating, so they financed a car (they didn’t have the cash to buy one and leasing a car wasn’t a better option either). What’s a little more debt when you already owe close to $100,000 (when you add in his wife’s student loans)?
Option 2 – Avoiding Debt at All Costs
I, on the other hand, took a completely different route. I started the same graduate program a semester after Barry with no undergraduate debt. I am set against taking out a loan. I understand that in order to pay for school, I need cash. Because of this, my wife and I both got jobs. I started working 30 hours a week and went to grad school part-time. This delayed my graduation date 1 year, but it also meant that I was graduating debt free. For nearly 3 years, I worked my butt off and am almost done. I am less than 4 months away from graduating.
Undergraduate Loans: $0
Graduate Degree (2 years): $0
While my friend Barry was able to graduate 1 year a head of me, it wasn’t like he was getting a job to earn some real money that much earlier than me. I also work full-time now while going to school and I have the benefit of not owing any money to anyone. Let’s look at the benefits that I have graduating debt free and living a debt free lifestyle.
Benefits of a Debt Free Lifestyle
- Flexibility: While Barry may be stuck in a dead end job, I have the flexibility of following my dreams. Not having to pay back loans immediately after graduating gives me many options.
- Lower Expenses: While it is hard to pay for school, by doing it without loans means that I have lower expenses than Barry for years to come. I imagine he is paying hundreds of dollars each month for several years.
- Better Career Opportunities: Instead of not working for the two years like Barry, I now have 3 years of great, consistent work history for my resume. Not only is my resume better off, it also shows that I can manage multiple things at once since I was able to work full-time and go to school part-time.
- Ability to Save/Invest Money: While Barry is spending his extra money to pay down debts, I am investing it for my retirement. This means that I will have more money later in life and won’t have to sacrifice as much in order to survive.
While many people prefer to finish their degree as quickly as possible, this comparison should show you that avoiding debt at all costs was one of the best choices I could have made. It not only strengthened my career opportunities, but has put me in a better financial situation than I could have thought possible. I am convinced that staying away from debt is the best approach anyone can take (with the exception of getting a mortgage perhaps).
Do you avoid debt at all costs? Or are you married to your debt like Barry?
This is a post from Corey at 20’s Finances.†He writes to†give young adults the tools needed to conquer financial challenges.