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Thursday, Sept. 23, 2004

This entry will be boring to anyone not in college, going to college or in debt from college.This is a prime example and reason for why I am working two jobs and taking advantage of the amazing opportunity to get a college education without paying for it.Another reason why I’m immensely excited…and fortunate to have found this job I’m at today.

Overdosing on “good” debt

My wife is 53 and is studying for her Ph.D. She has about $138,500 in subsidized and unsubsidized loans from the federal government. She also has about $14,000 in private education loans. This will cause payments to be about $800 a month for 30 years at today's low interest rates.

My wife wants to be an instructor at a college. Currently, there are no openings. A starting salary would be around $50,000 a year.

Liz, this is clearly an example of a big investment (with) a poor return. When I called Sallie Mae, one counselor raised the issue of (the) high debt and pointed out that almost a quarter of a million dollars will have been spent once this loan is paid off (if this loan gets paid off)!! And with the relatively limited time (left) in my wife's work life, there will not be much time to earn the benefits of higher education. Also, imagine paying student loans into your 60's, 70's and possibly 80's?

I am so glad I am not responsible for these loans.

-- Steve from California

The love of learning is a wonderful thing. But if you’re borrowing money for an education, try to make sure that the payoff will be worth the investment.

Unfortunately, many people blindly assume that student loans are always “good” debt -- like mortgages or business loans. In truth, all these loans can, in moderation, leave you better off by increasing your wealth or earning power.

But an overdose on “good” debt can be just as fatal to your financial health as taking on too much “bad” debt, like credit cards.

A general rule of thumb is that your student loan debt shouldn’t exceed two-thirds of your expected first-year salary. In your wife’s case, that means she should have stopped about $120,000 ago.

There are plenty of other ways to afford an education besides borrowing. Going to a cheaper school is one of them. So is working part time, or alternating study semesters with work semesters. It may take longer to get your degree, but you won’t emerge with a crushing load of debt that puts you behind the financial eight-ball for the rest of your life.

My thinking here applies to undergraduate degrees, too. For more details on college debt, see my column How much college debt is too much?

Speaking of which, you will be paying for this debt, one way or another. If you live in a community property state like California, debts incurred during marriage are generally considered joint debts. Even if you live in a common-law state, the money your wife pays towards her loans is money that won’t be available for other, joint goals, such as a comfortable retirement or vacations.

3:09 p.m. ::
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