I think one of the toughest parts about the admission process, especially for talented students, is the pure number of college options you have. In the United States there are more than 2,400 four-year colleges, and more US students are going abroad to study than ever before. And in the middle of all of that, everybody is sending you glossy, shiny brochures of happy, smiling students underneath trees with professors blissfully learning in the sunshine. One day it’s the snow covered mountains of Vermont or Colorado, and the next day you’re picturing yourself strolling the beach after class in California or Miami. (Talk about FOMO!)

Adjusting to Choice

Having taught, employed, and regularly observed college freshmen over the years, I’ve found the variety of choices is one of the biggest adjustments to campus life. So I completely get it. High school was a constant cacophony of bells ringing, whistles blowing, horns honking. Start, stop. Begin, end. Go to school, practice or rehearse or work, study, sleep. Rinse and repeat. The big question is what are you doing with your discretionary 37 minutes each day?

Then you land on a college campus and are no longer required to run four miles a day for the cross country team. They have food courts and gluten-free options. And your class of 350 is now a campus of 18,000. “And wait, what?! I only have to be in class 15 hours each week plus a lab? Yeaassss!!!”

In addition to all that, at any time of day or night you can find someone interested in hitting a tennis ball, heading to the library, catching a show, or shooting potatoes off the roof with a homemade contraption (just spit-balling hypotheticals here).  Figuring out how and with whom to spend time is an understandable challenge. Ultimately, you learn to make choices based on hours in the day and week and what you want your experience to look like.

Student Loans & Debt

Unfortunately, when it comes to student loans and debt, we don’t take a similar approach. Instead, discussions of affordability are largely framed by a college’s Return on Investment (ROI) or a family’s perceived tolerance for a particular debt load.

At this time of year, families are usually looking at Net Price Calculators or specific financial aid letters and asking the question,“can we afford this?”

To answer that question you need to go beyond the bottom line number and consider how you are willing to live during and after college.

• Will you co-op or intern during your time in school?
• Are you willing to pick up a campus job or one in the surrounding community?
• Is undergraduate research a paid position, and how much can you earn?
• Are you willing to put yourself on a budget each week or month during college, and how much is reasonable?

Last week we established that the average debt for a college graduate is approximately $30,000 (the average salary for a new graduate is $45,000). We also heard some good tips from Jeff Selingo and Rich DeMillo on not graduating college with more student loans than your starting salary.

This week I wanted to provide you with a sample budget from a recent Georgia Tech graduate. 

 George P. Burdell

• Student loans:
  • $40,000 (5% interest rate)
• Salary:
  • $50,000, entry level, with full benefits (medical/dental)
• Housing (in-town Atlanta):
  • 2-Bedroom 1-Bath Apartment (shared w roommate)
• Lifestyle:
  • Eats at restaurants and grocery shops, but eats/orders out more often.
  • Enjoys travel, games, movies and social time with friends
  • Single, No pets
• Car: Used 2013 Honda Accord:
  • 30,000 miles · Automatic · 29 MPG
  • Bought at $23,000
  • Down payment of $8,000 (earned via college internship and supplemented by graduation gift)
  • Interest Rate: 3%
  • Loan Period: 48 months
  • Payment: $333/month
• Estimated Annual Costs:
  • Medical: $300
  • Car Maintenance: $500
  • Emergencies: $250
  • Car Tax: $100
  • Holiday Events/Gifts: $350
  • Total: $1500 ($125/month)

Monthly Budget

Monthly take home pay: $2,900

Category	Budgeted Amount
Monthly Bills
Car Insurance	$180
Car Payment	$350
Cell Phone	$75
Housing	$700
Utilities	$150
Loan Debt	$675
Necessities
Groceries	$200
Gasoline/Fuel	$100
Annual Costs Fund	$125
Non-Essentials
TV (Netflix, Prime)	$20
Restaurants/Dining	$125
Entertainment/Travel	$100
Discretionary Spending	$100
Total Expenses: $2900

 

Student Loan Debt vs. Car Debt

Using this budget (which you’ll notice assumes no raises or bonuses), George can pay off his student loans in six years. This is where I completely take issue with people who equate student loan debt to buying a car. Not only does that car require gas, insurance, and routine maintenance, but all the while it’s depreciating in value. Often it’s not long after six years that you end up with another car payment because the one you worked so hard to pay off is now needing to be replaced. In contrast, the investment in your college education continually appreciates due to network of classmates and other alumni. More on that next week.

In the meantime, pick this budget apart. Add debt to the beginning assumption… decrease the salary… increase the amount you might spend in groceries or transportation costs… or lengthen the amount of time to pay off in order to distribute expenditures differently. Each of those choices is a reflection on your values, your priorities and your life goals and vision. Even if you change every row of George’s budget, you’re a lot further along in determining what you will choose to pay for, and how you can and cannot live. “Can we afford it?” is a very personal question rooted in choice. Hopefully this will provide you some of the tools and prompts necessary to answer that for yourself. Happy budgeting!