Dave Ramsey: Why Student Loan Debt is STUPID

[BMBiology]

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[BMBiology]

Pharmacist called with 245 k in student loan debt:

 

[fauxden]

 

[Swishers]

This is a big lie. Fresh Graduate of pharm school making $110k in North Carolina working for CVS? No fffing way

I don't get it. What's so unbelievable to some of the commenters on the second video?

 

[Gombrich12]

At this point the more people graduating $300,000 in debt the better. The numbers need to be astronomical for congress to take even further notice of this problem.

 

[anewmanx]

At this point the more people graduating $300,000 in debt the better. The numbers need to be astronomical for congress to take even further notice of this problem.

Um... congress intentionally made it this way. You saddle your sheep with debt that they cannot escape from so that they are stuck serving you the rest of their lives. It's a chain around their necks.

 

[anewmanx]

To think, I felt bad taking out a 4.5k student loan to float me until I finish getting the paperwork setup for my GI Bill.

 

[BMBiology]

At this point the more people graduating $300,000 in debt the better. The numbers need to be astronomical for congress to take even further notice of this problem.

The government gives student loans to just anyone and the loan is guaranteed by the government. I know people who took out student loans to buy a car, to buy a house, to invest in the stock market. It doesn't matter to them how much they have borrowed because they are not planning to pay it back anyways.

In the mean time, schools keep on raising tuition. It's an easy money.

Just wait until the government gets its bill. Credit will be restricted and the student loan bubble will burst.

 

[confettiflyer]

Just wait until the government gets its bill. Credit will be restricted and the student loan bubble will burst.

Burst bubble usually means bailout. S&L, TARP, GM/Ford/Chrysler...

 

[BMBiology]

Burst bubble usually means bailout. S&L, TARP, GM/Ford/Chrysler...

if the student loan bubble burst, who do you think is going to get paid out?

The homeowers got left out in the rain when the housing market crashed. I see the same thing happening to the students.

 

[confettiflyer]

if the student loan bubble burst, who do you think is going to get paid out?

The homeowers got left out in the rain when the housing market crashed. I see the same thing happening to the students.

Nah...homeowner's walked away (or got evicted) and got their debts extinguished in foreclosure....AND the gov't waived the income taxes on forgiven loan amounts.

Man...if I could go back in time, I would have bought with an 80/20 NINJA loan, taken out a HELOC on the paper appreciation, and walked away.

My credit would have been trashed for 7 years, but I could have ended up with $$$$ tax free in the end and lived rent free for a few years while the foreclosure wound its way through.

Actually, I could have rented out some rooms and made $$...then after the foreclosure I could have collected another bonus in cash for keys.

AAND I would have been able to buy after 3 years under FHA (7 for conventional).

Only the honest homeowners who didn't cash out equity and fought to stay current on their home loans out of some misplaced sense of morality got hosed. They got stuck with lower property values while everyone danced around them.

But hindsight is 20/20. Oh well.

 

[BMBiology]

Fair enough. But how do students walk away from student loan debt? It's not dischargeable. The governement would garnish their wage and their social security.

 

[confettiflyer]

Fair enough. But how do students walk away from student loan debt? It's not dischargeable. The governement would garnish their wage and their social security.

Since we're talking about the past and bailouts, my line of thinking is that when there is a critical mass of unsustainable debt there has to be a mechanism to extinguish it. Sometimes it exists already (bankruptcy, foreclosure, conservatorship), other times it has to be created (Resolution Trust Corp 1989) or augmented (pre-packaged GM bankruptcy, tax code changes to deal with a critical mass of phantom mortgage income).

There are two arguments that float here, and the mortgage crisis comes to close to what we're dealing with in student loans. Argument 1 is that people should be made to pay no matter what and that choices made need to let their natural course play out (the morality argument, this is you BMBiology), argument 2 is that the preservation of present and future total economic value takes precedence (the pragmatic argument, this is the bailout camp).

The mechanism to discharge student loans sort of exists, it's on paper (the IBR and PAYE plans with a defined end point with loan forgiveness). It's by no means complete--the income tax bomb at the end of PAYE, for example.

The argument I make is that the economic cost of not allowing a more generous discharge of student loans is hampering economic growth to the point where another extinguishing mechanism is imperative. You'll have enough groups (NAR, for example) and entities screaming to get these loan balances down so they can come in and claim a piece of that bailout pie. This is why I think terms will (slowly) get more generous over time.

If it doesn't happen? Oh well, we're all on this sinking ship together.

Our economy depends too much on young people buying older peoples' crap. When a critical mass of graduate debtors can't buy a house and stay out of the housing market, that directly impacts the prudent savers and homeowners by depressing interest rates and housing prices.

My debt problem is your debt problem, whether you like it or not.

 

[BMBiology]

The mechanism to discharge student loans sort of exists, it's on paper (the IBR and PAYE plans with a defined end point with loan forgiveness). It's by no means complete--the income tax bomb at the end of PAYE, for example.

You do make a good point. There is no point in going after the music major with 250 k in student loan debt. This person will never pay all of it plus interest. However, I disgree with the government bailing out everyone. Why? because it doesn't need to. High earners can afford to pay it off over 20-25 years. They will pay for that music major. You already see some of this in the Obama budget proposal.

This is what I predict will happen:

(1) interest rate will remain high
(2) cap on the amount that is "forgiven"
(3) the amount that is "forgiven" will be taxed for high income earners
(4) your spouse income must be taken consideration when calculating your monthly repayment

The bottom line is somebody will pay for it. It's not going to be the musician, the teacher, the social worker. It is going to be the physician, the pharmacist, the dentist. High income earners with a lot of student loan debt. It's just a number game at this point.

I also see the government determining how much student loan a school can get based on the salary of its graduates (already proposed). As graduates struggle to find a job and the student loan money is restricted, some schools will be forced to close.

 

[trailerpark]

He makes good points. I'm from NY and did undergrad at a SUNY school and there were lots of students from out of state paying out of state tuition. Go to your own state schools! If you don't get in then go to your own state community colleges and reapply. I ended up going to the closest state school near me and eventually commuted my last 2 years.

 

[xiphoid2010]

Bmb makes a valid point. While the government will not allow people to starve and risk riot/revolt/social instability by bailing out the average Joe, they don't have to for the wealthier folks. Hence there is the talk of saving the sinking social security and medicare by making them means tested, hence I'm not cpounting on them being there for my retirement planning calculations. Being pragmentic is also realizing that something has to give when there just isn't enough money there. It's one thing to hope for a freebie tossed your way by chance, it's another to plan life hinged on it.

 

[confettiflyer]

Bmb makes a valid point. While the government will not allow people to starve and risk riot/revolt/social instability by bailing out the average Joe, they don't have to for the wealthier folks. Hence there is the talk of saving the sinking social security and medicare by making them means tested, hence I'm not cpounting on them being there for my retirement planning calculations. Being pragmentic is also realizing that something has to give when there just isn't enough money there. It's one thing to hope for a freebie tossed your way by chance, it's another to plan life hinged on it.

Man...what planet do you guys live on? When was the last time major macroeconomic policies intended to relieve debt and stimulate the economy ever benefit poor old average Joe?

Unless some bleeding heart liberal gets elected to office...pretty sure the pattern will continue that the wealthier will be disproportionately be beneficiaries of any policies coming forward.

He makes good points. I' from NY and did undergrad at a SUNY school and there were lots of students from out of state paying out of state tuition. Go to your own state schools! If you don't get in then go to your own state community colleges and reapply. I ended up going to the closest state school near me and eventually commuted my last 2 years.

I left California because the out of state private school I went to was far cheaper than the in-state school. Actually, that's a lie...I left because I couldn't freakin' get into UCSF. I guess it doesn't matter now since I'm adjunct faculty, hahah.

 

[xiphoid2010]

Man...what planet do you guys live on? When was the last time major macroeconomic policies intended to relieve debt and stimulate the economy ever benefit poor old average Joe?

Unless some bleeding heart liberal gets elected to office...pretty sure the pattern will continue that the wealthier will be disproportionately be beneficiaries of any policies coming forward.

The whole social security, medicare/medicaid, student grants/loans, all the entitlement programs are all to the benefit of the poor. Don't get me wrong, I don't think they are a bad idea by principle. I'm a centrist and pragmatist. Shifting too far to the right would destabilize the society, shifting too far to the left would bankrupt the country.

Let's think of government (made up of politicians) as a living organism, lives to serves to and prosper to its own ends. The poors are legion, while have little worth individually, the despirate mobs probably has toppled more governments than any other means. The rich are what keeps the politician living a good life.

But when push comes to shuve, republicans and democrats will sleep together when its do or die. When there just isn't money for a massive program such as social security, its not far fetched to think politicians will play gecko - shed the tail to preserve the body. Will they 100%, I don't know, but I want to make sure I'm not the the tail portion if they do.

 

[BMBiology]

Let me see...student loan tax deduction cap at 75 k (for singles), subsidized stafford loan becomes unsubsidized a few years ago, grad plus student loan interest is at 7.2% (or something high).

Doesn't seem like the government is on our side.

 

[pezdispenser]

 

[Momus]

SS is going to be around until we die that's 100% sure. Sure budget deficit bla bla bla, etc. But they have 100 different ways to fix the problem... raise retirement year, reduce benefits, more tax... etc. It will be there when we are retired but it will not be sufficient to support good lifestyle.

 

[BMBiology]

Just remember SS has not cost the government a single cent.

 

[confettiflyer]

That would suck making $110k, whoever posted that.

 

[clerkmaxwell]

I have >200k in student loan debt. My salary= 120k/year. After taxes/401k/insurance I bring home a little over 6k/month. It is going to take me forever and a fortune to pay this off. Plus with so many RPhs out there the major chains are laughing as they make work conditions sheitier by the day. The struggle is real. I'm a 30 y/o old professional with a doctorate. I live like a broke college student and will for many years to come. I f****** myself by choosing pharmacy. Every day I slog through another dangerously understaffed shift taking on more and more responsibility making the banks richer while I go home and eat mac'n'cheese on my futon. But keep churning out the pharmds, I happen to be a sadomasochist.

 

[Silent Cool]

Um... congress intentionally made it this way. You saddle your sheep with debt that they cannot escape from so that they are stuck serving you the rest of their lives. It's a chain around their necks.

 

[BMBiology]

I have >200k in student loan debt. My salary= 120k/year. After taxes/401k/insurance I bring home a little over 6k/month. It is going to take me forever and a fortune to pay this off. Plus with so many RPhs out there the major chains are laughing as they make work conditions sheitier by the day. The struggle is real. I'm a 30 y/o old professional with a doctorate. I live like a broke college student and will for many years to come. I f****** myself by choosing pharmacy. Every day I slog through another dangerously understaffed shift taking on more and more responsibility making the banks richer while I go home and eat mac'n'cheese on my futon. But keep churning out the pharmds, I happen to be a sadomasochist.

Did you know you were going to graduate with 200 k student loan debt?

 

[clerkmaxwell]

Did you know you were going to graduate with 200 k student loan debt?

Not really. I figured it would be in the mid to high 100s. My mistake is that I didn't understand the impact of interest. My principle is "only" around 170k. I had no idea that interest would balloon the hell out of that and also make it so difficult to pay everything off. The amount of interest I accrued in school and the amount of interest I pay every month is embarrassing. It really is. I'm honestly embarrassed by my debt. I've never told anyone how much I owe, not even my family.

 

[Silent Cool]

Not really. I figured it would be in the mid to high 100s. My mistake is that I didn't understand the impact of interest. My principle is "only" around 170k. I had no idea that interest would balloon the hell out of that and also make it so difficult to pay everything off. The amount of interest I accrued in school and the amount of interest I pay every month is embarrassing. It really is. I'm honestly embarrassed by my debt. I've never told anyone how much I owe, not even my family.

Would you rather be a pharmacist with 200K of debt or a dentist with 500K of debt?

 

[clerkmaxwell]

.... a dentist with 500K of debt?

Is this a real thing?

 

[Silent Cool]

Is this a real thing?

Yes. Most private dental schools will put you in the hole 500K. I have a friend with no undergrad debt who finished at an east cost private school couple of years ago who has 500K of debt.

So which would you choose??

 

[clerkmaxwell]

Yes. Most private dental schools will put you in the hole 500K. I have a friend with no undergrad debt who finished at an east cost private school couple of years ago who has 500K of debt.

So which would you choose??

To eat a terd sandwich or sheit hotdog? With no knowledge of general dentist salaries or prospects I have to say I would maybe stick with my situation. Both are a bit absurd.

 

[Momus]

$110k seems to be reasonable that's $55/hr in NC... The easiest way to easily estimate how much someone make yearly, hourly pay X 2 = $55 X 2 = 110k

 

[Silent Cool]

To eat a terd sandwich or sheit hotdog? With no knowledge of general dentist salaries or prospects I have to say I would maybe stick with my situation. Both are a bit absurd.

I would say that a general dentist who is well established can earn about 2x what you are, but that would also necessitate the purchase of a practice, which for that level of income would cost about 400K.

 

[anewmanx]

I would say that a general dentist who is well established can earn about 2x what you are, but that would also necessitate the purchase of a practice, which for that level of income would cost about 400K.

Seems to compare nicely to a pharmacist buying their own pharmacy.

 

[Silent Cool]

Seems to compare nicely to a pharmacist buying their own pharmacy.

Yeah, the only problem is that the pharmacy market is much spottier. I mean, some pharmacists seem to make astronomical amounts of money, and others scrape by. In dentistry I think the independent practice purchase is much more predictable, but the independent pharmacy purchase is much more of a gamble. Also, dental practices (relative to a certain income) are much cheaper.

 

[anewmanx]

Yeah, the only problem is that the pharmacy market is much spottier. I mean, some pharmacists seem to make astronomical amounts of money, and others scrape by. In dentistry I think the independent practice purchase is much more predictable, but the independent pharmacy purchase is much more of a gamble. Also, dental practices (relative to a certain income) are much cheaper.

From what little I've researched, your words ring true. Then again, some people just really suck at running a business.

 

[oldstock]

I have been saying the same thing !! 2 thumbs up !!

 

[oldstock]

 

[Silent Cool]

I have >200k in student loan debt. My salary= 120k/year. After taxes/401k/insurance I bring home a little over 6k/month. It is going to take me forever and a fortune to pay this off. Plus with so many RPhs out there the major chains are laughing as they make work conditions sheitier by the day. The struggle is real. I'm a 30 y/o old professional with a doctorate. I live like a broke college student and will for many years to come. I f****** myself by choosing pharmacy. Every day I slog through another dangerously understaffed shift taking on more and more responsibility making the banks richer while I go home and eat mac'n'cheese on my futon. But keep churning out the pharmds, I happen to be a sadomasochist.

Do you max out your 401K (ie, put away 17.5K per year?)

 

[trailerpark]

What insurance are you paying too?

 

[BF7]

Yeah, the only problem is that the pharmacy market is much spottier. I mean, some pharmacists seem to make astronomical amounts of money, and others scrape by. In dentistry I think the independent practice purchase is much more predictable, but the independent pharmacy purchase is much more of a gamble. Also, dental practices (relative to a certain income) are much cheaper.

The default rate on loans for Pharmacy startups is roughly 3%....for those loans that go to pay for the purchase of an existing business it's less than 1%. Call Live Oak bank (www.liveoakbank.com) and they will tell you the same thing. Pharmacy has been a relatively safe bet; more times than not, why you see a pharmacy close or sell out (to a chain) it is because the owner is wanting to retire and they didn't realize that it takes a lot of work and planning to make your financials look good enough to have a bank qualify your business for a buyer to get a loan for it despite the fact that they are profitable. It's still very profitable to own your own pharmacy but many Pharmacists (particularly the one's of retirement age) are fairly lax on cleaning up their accounting.

Here's an article for reference...certainly not scientific as it relies on Pharmacy owner survey answers.....http://www.drugchannels.net/2013/11/profits-rebound-for-pharmacy-owners.html

 

[anewmanx]

The default rate on loans for Pharmacy startups is roughly 3%....for those loans that go to pay for the purchase of an existing business it's less than 1%. Call Live Oak bank (www.liveoakbank.com) and they will tell you the same thing. Pharmacy has been a relatively safe bet; more times than not, why you see a pharmacy close or sell out (to a chain) it is because the owner is wanting to retire and they didn't realize that it takes a lot of work and planning to make your financials look good enough to have a bank qualify your business for a buyer to get a loan for it despite the fact that they are profitable. It's still very profitable to own your own pharmacy but many Pharmacists (particularly the one's of retirement age) are fairly lax on cleaning up their accounting.

Here's an article for reference...certainly not scientific as it relies on Pharmacy owner survey answers.....http://www.drugchannels.net/2013/11/profits-rebound-for-pharmacy-owners.html

Wow, those are incredibly encouraging numbers!

 

[Muse600]

Pharmacist called with 245 k in student loan debt:

Dave Ramsey's strategy matches my "help paying off student loans" thread!

I wonder what sort of world we'd live in if everyone took his advice - if everyone only went to college to get high paying jobs, each professional school/investment banking job becomes a gazillion times more competitive, and more people get selfish to get a bigger piece of the pie.

 

[Mr DebtAnatomy]

Sadly I have witnessed several students talk about their debt load as if it were a temporary problem that will be resolved through legislation, or bail outs. Taking on such a massive amount of debt should never be done with the hope that it will magically be forgiven when the bubble bursts. The safest route is to just have a plan of how to pay it off. This plan may require you to lower your standard of living for several years, but at least it's realistic and in your control. Look at the cold hard numbers of tuition, and the cold hard numbers of expected income, and it's not hard to chart your repayment plan. The madness comes when people get to the point of repayment and are suddenly surprised that their disposable income is so low.