Wednesday, June 2, 2010

Student Loan Debt

New York Times
Like many middle-class families, Cortney Munna and her mother began the college selection process with a grim determination. They would do whatever they could to get Cortney into the best possible college, and they maintained a blind faith that the investment would be worth it.

Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she’s been enrolled in night school, which allows her to defer loan payments.


The balance on Cortney Munna’s loans is about $97,000, including all of her federal loans and her private debt from Sallie Mae and Citibank. What are her options for digging out?

Her mother can’t help without selling her bed and breakfast, and then she’d have no home. She could take her daughter in, but there aren’t good ways for her to earn a living in Alexandria Bay, in upstate New York.

Cortney could move someplace cheaper than her current home city of San Francisco, but she worries about her job prospects, even with her N.Y.U. diploma.

She recently received a raise and now makes $22 an hour working for a photographer. It’s the highest salary she’s earned since graduating with an interdisciplinary degree in religious and women’s studies. After taxes, she takes home about $2,300 a month. Rent runs $750, and the full monthly payments on her student loans would be about $700 if they weren’t being deferred, which would not leave a lot left over.

There was a follow-up article where she tried to respond comments on the first article.
First and foremost, I openly acknowledge my responsibility for my current situation, as well as the naïveté in my estimation of the return on investment of a “high quality” education and a liberal arts degree. My only explanation is that once I was in school, I didn’t think much about tuition beyond filling out the paperwork, and I did what I always had done: focused on my education.

I accept that this was negligent on my part, but unfortunately, I was too young to know better. I also willingly admit that I am responsible for repaying the money I borrowed. I have been doing this, to the best of my ability, over the course of the last five years and have every intention of continuing to do so.


Beyond my education itself, I learned how to survive in New York City. To describe my degree as “women’s studies and religious studies” doesn’t really do it justice. I’m an alumna of the Gallatin School of Individualized Study. I created my own interdisciplinary program in collaboration with an adviser. It involved courses from a variety of departments, including religious studies, gender studies, sociology, psychology plus several interdisciplinary and writing seminars. I had to defend my concentration in front of a panel of professors before graduating.

Some thoughts. First, I have zero sympathy for her. She bought something that she could not afford on credit. Why did she buy a "luxury" education when she could have gone to SUNY or chose something cheaper? At least she acknowledges that it's her responsibility to pay back the loans, not like the lowlifes not paying their mortgages.

As I was reading the original article, I kept thinking, "What was her major?" Near the end of the article, it said "interdisciplinary degree in religious and women’s studies." Nice. At the risk of sounding a bit arrogant, that is not a real degree and definitely not worth whatever she paid ($160k?). I could have picked an mick (Mickey Mouse) major instead of Electrical Engineering and screwed around a lot more in college but I was worried about getting a job after graduation. Maybe she really enjoyed her time in NYC and believe she received a valuable education but all that is irrelevant if her skills are not worth anything in the marketplace. What she should have done is to pick a "vocational" major and take all those fun classes on the side, instead of making those useless classes her major.

Finally, since I'm a finance guy, let's look at the numbers. It says she makes $22/hour living in San Francisco, which must be like living in heaven for a women's study graduate. Anyway, her rent is $750/month (does she have a roommate?) and the proposed student loan repayment is $700/month. Is that affordable?

$22/hour is equal to ~$45k per year. Assuming she takes all the standard deductions, her AGI is $45,320 - $5,700 - $3,650 - $8,400 (student loan) = $27,570. That works out to a federal tax of $3,719. CA state tax is $45,320 - $3,637 = $41,683 or $1,773 - $108 = $1,665. Add 6.2% for Social Security, 1.45% for Medicare, and 1.1% for CA SDI = $3,965. Whew... all those taxes leaves ~$36k or $3,000/month. I don't know how they get $2,300/month after tax in the article. $22/hour x 40 hours/week x 52/12 = ~$3,800 gross. There is no way she's paying 40% in taxes.

Anyway, if we subtract rent and student loan payment, that leaves her with ~$1,500/month. Adding approximate expenses from when I was living alone in an apartment:
- Cell phone = $60
- Broadband = $50
- Utilities = $60
- SF MUNI pass = $80 (assuming no car)
- Food = $600 ($20/day average)
- Personal $400 ($100/week.... I didn't spend that much)

That leaves ~$250/month leftover. Of course, one potentially big item is health care... not sure if she has insurance through work. If she has to buy her own insurance, the remaining $250/month may or may not be enough. However, it does look like she can continue to live in SF while paying off her student loans so I'm not sure what all the whining is about. As time passes, hopefully she will get raises or find a better paying job (not sure what without more education) so her financial situation should get better.


Hmm, I just did her taxes and budget as part of the blog post. I should get back to work.


Even if she was making $2,300 after tax, that would leave $850/month which is still doable but she would need to get rid of the cell phone, not buy new clothes, and eat in. She can also get food here but that would probably be embarrassing for a NYU grad with a fancy liberal arts degree.


Anonymous said...

in her defense, i think if we got out these days with engineering degrees from university of caucasians lost in asia (with their higher tuition) we would be carrying probably close to 50% of her debt at graduation (assuming parents don't pay any of the bills). it is a much bigger burden graduating these days on the debt side.

i believe a 4-year degree is worthless in this type of job environment. no college tuition from daddy for any of my kids. they can figure out how to be a plummer, electrician, and a hair-dresser on their own.

totochi said...

Perhaps, though I did have to take out a loan at UCLA.

hogsman said...

Since she's working for a photographer, she may not be working 40 hours/week -- maybe that's how they arrive at $2,300/month.