Recently I watched my niece walk across the stage to receive her high school diploma. I am proud of what an impressive young lady she has grown into. But I’m especially thrilled to know that she will graduate from a good college in four years with no student debt.
Like many high school seniors, she received several college admission letters in the spring and eventually narrowed them to two choices. One was from her dream school—an elite private college that costs about $70,000 a year, including room, board, and tuition. The school offered her a $20,000 merit-based scholarship per year, but she still needed to come up with $50,000 every year for the next four years to attend.
Another acceptance was from a good, but not excellent, state college. It offered her a full-ride scholarship that would cover room, board, and tuition, meaning she wouldn’t need to come up with any extra money. In addition, the college would allow her to participate in a work-study program. She would be able to earn her spending money and gain work experience at the same time.
However, this college wasn’t her dream school. It wasn’t even one of her top choices. She only applied for it as a fallback “safety” option and as a last resort.
I knew her heart had been set on that elite college for a long time. I was the one who took her for a campus visit and encouraged her to apply. Since she is the child of a single mother, however, I knew she could only afford college on a full scholarship.
After receiving her initial admission letter from the elite college, my niece appealed for more financial aid but was told no. Some of her classmates were planning on borrowing to attend college. Since I am the financial guru in the family, my niece came to me for advice: should she borrow $50,000 each year for the next four years to attend her dream school?
I ran some numbers for her. If she borrowed $50,000 a year for the next four years, she would graduate with $200,000 in debt at the young age of 21. Assuming the average federal student loan interest rate of 4.8 percent and a monthly payment of $938.05, it would take her 40 years to pay off the $200,000 loan plus $250,265.33 interest.
I explained to her that even this gloomy scenario is based on some very rosy assumptions. Given the average starting salary for a college graduate is at $50,000, a monthly payment of $938.05 will represent more than 22 percent of her pre-tax annual income. She wouldn’t have much left to cover her basic living expenses, and she certainly wouldn’t be able to pursue other interests in life, let alone saving for a down payment for a house or retirement.
Additionally, any attempt to reduce the monthly payment only means it would take even longer than 40 years to pay off her loan. So, I pointedly asked my niece, “Do you really want to start life as a 20-something with this huge financial mountain on your back and spend the rest of your life paying it off? All for a college degree from an elite school?”
I knew she faced a tough choice. As a typical Asian American family, we always emphasize the importance of education and inspire our youth to pursue the best. To suggest an Asian kid give up the opportunity to attend an elite college can be unthinkable. So I shared my own story.
Years ago, I faced a similar situation when I came to the United States to pursue a master’s degree. I passed up the opportunity to attend a prestigious private college because it didn’t offer any scholarships. Instead, I chose a small public university in upstate New York, which awarded me a merit-based scholarship. The scholarship wasn’t enough to cover everything, so I paid for the rest by working.
I had three part-time jobs. I worked at a Chinese restaurant during lunch and dinner rush hours. I was a math tutor to an undergraduate student and worked at a computer lab help desk in on weekends.
To save money, I ate leftovers at the Chinese restaurant whenever I could. Other times, I bought the cheapest food in the grocery store—usually carrots and chicken gizzards. Whenever I cooked chicken gizzards, our neighbor’s cat impatiently waited outside the kitchen window for his share, while my American roommates ran upstairs to hide from the smell they called “disgusting.”
Yes, I had to sacrifice to earn my college education, but I was able to graduate debt free. Lacking a degree from an elite college didn’t prevent me from finding a good-paying starting job. Without a financial burden, I was able to buy my first house within a few years, while similarly aged colleagues were still paying off their student loans.
I told my niece that she’s in a much better situation than I was. With a full-ride scholarship and a work-study program, she won’t have to work as much as I did. She would gain work experience while having plenty of time to study and have fun. She would get to enjoy her college life much more than I ever did.
When I got the text from my niece the day she committed to the state college, I couldn’t have been prouder of her. At age 18, while facing the first difficult decision in her young life, she demonstrated more maturity than many older adults. She solicited input from those she trusted, evaluated her options and possible consequences, and eventually made a sensible decision that I believe will set her on a strong path forward.
There are many discussions about what to do with the nation’s student loan problem. Americans owe more than $1.5 trillion in student loans—equivalent to $34,000 per graduate. One of the arguments the #CancelStudentLoans crowd uses is that prospective college students aren’t financially savvy enough to understand the enormity of borrowing tens and thousands of dollars. They argue that because it can be hard for an 18-year-old to think about the future beyond tomorrow, student debt should be bailed out.
To boost his presidential run, Sen. Bernie Sanders recently proposed bailing out all student loan debt. His proposal is a terrible idea. Not only will it worsen the student loan crisis, it will also have the perverse effect of making colleges even more unaffordable for future generations.
Where I agree with the #CancelStudentLoans folks is on only one issue: an 18-year-old shouldn’t make important financial and life decisions alone. Missing from all the student loan crisis discussions is the role adults play (or should play) when young people are facing such a difficult yet tremendously important decision.
As adults, we owe it to our children and family not to be missing in action when a young person is tempted to borrow $30,000 or $50,000 a year to go to college without fully thinking through the long-term effects. We need to be present. We have a duty to guide them, using the wisdom we’ve (hopefully) accumulated over the years.
We are the ones who should help them understand that the financial decision they make today will enormously affect their future and happiness. It’s our job to help them learn a simple, yet valuable personal finance lesson: don’t buy anything you can’t afford. It should go without saying that the principle of “living within your means” is one of the chief personal finance lessons we should have taught them long before they turn 18.
It’s also our job to pass on a valuable life lesson: your future success doesn’t have much to do with where you go to college or whether you go to college at all. As former secretary of state, Colin Powell once said, most of our lives’ happiness has more to do with ”hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do.”