The Fuzzy Math Behind Student Loans

>>We’re told to work hard, go to college, and get a degree. What is not always made clear is how to pay for that education. Student loan debt now tops $1.2 trillion. In North Carolina, that breaks down to almost >>$24,000 in debt at the completion of a four-year degree—and that’s $10,000 more than the national average.

In 2013, the >>average starting salary for a college graduate amounted to $44,000 a year. After taxes, that comes out to a wage of about $2,400 a month. It sounds like a lot of money– until you start accounting for expenses. Imagine you pay $1,000 on rent, $250 on a car payment, $200 on health insurance premium, $250 on groceries, $60 for cell phone service, and $250 on utilities. That adds up to $2,310 in expenses for the month, leaving you only $90 for gas, clothing, unexpected expenses, and oh, yeah, your student loan payments. How the heck can college grads afford to pay their student loans?!

President Obama is apparently asking the same question. Earlier this month, he signed an >>executive order that caps monthly payments for student loan recipients at 10% of their monthly income. Many recent borrowers already have that ability, but the President’s new directive offers the option to more people.

I’m sure those saddled with thousands of dollars of student loan debt are glad for whatever relief they can get, but let’s get back to my math equation. With the President’s new mandate, grads will pay 10% of their monthly income. For the average grad making $44,000 a year, that amounts to $360 in student loan payments per month. The problem is that, by my estimates, the average grad has only $90 left at the end of each month, and a loan payment will put them $270 in the red.

All those numbers add up to a new title for the well-intentioned college graduate: they have joined the ranks of the “working poor.” It’s a tough scenario for anyone, but just imagine the number of single mothers trying to support themselves and their children while making the numbers add up.

It places people in desperate situations. Take the story of >>Shanesha Taylor: after interviewing for many low-wage jobs, she finally got an interview for one that paid a decent wage. Taylor had no one to watch her kids during the interview, so she left them in her car with the AC blowing and the windows cracked. After acing the interview, Taylor walked outside to find her car surrounded by police and to be charged with felony child abuse.

Before you judge Taylor for leaving her kids in a hot car, think for a minute. She had one shot to get a decent wage and afford a place to live for her family (Taylor was homeless at the time). I can imagine how she rationalized it in her head: “They’ll just be in the car for a few minutes. If I get this job, I can give them real beds and good food.” Imagine how desperate she must have been to make that judgment.

While the President is relieving what burden he can, the private sector is also stepping up. >>Starbucks just announced a program for baristas who want to finish college– specifically those who enroll online at Arizona State University. Employees who are admitted to the program will have 22% of their freshman and sophomore years’ tuition paid for by Starbucks, and 44% of their junior and senior years paid. The company’s CEO says that he hopes other companies will be encouraged to create similar programs.

For several years, >>Chick-fil-A has offered scholarships to qualifying employees to pay for college. Each year the company contributes $1.6 million dollars to team members to attend a college of their choice. Currently, 30,000 Chick-fil-A employees attend more than 500 different colleges and universities.

The answer to the question of how to overcome the problem of student debt will have to be both a public and private endeavor—because everyone has a vested interest in the outcome. From the public sector’s perspective, debt-laden college graduates are more likely to need public assistance to make ends meet. For the private sector, employees with little or no debt can focus on their responsibilities at work, instead of looking for second and third jobs to make ends meet. They also have more money to spend, therefore providing a boost to local business.

I am so grateful I chose to take advantage of the full scholarship I was offered out of high school. I can’t imagine being 23 years old and thousands of dollars in debt—or leaving my kids in the car in order to try to make ends meet. Let’s hope more private companies jump on the tuition-aid bandwagon, and in the meantime, give that young waiter or waitress an extra dollar tip if you can spare it.