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49 Unique Guild Members
14 Level 100 characters
460 Website/Forum Members
0 Posts in 24 hours
0 Posts in 7 days
84315 Total Posts
Past is the last poster

I'm FINALLY crawling out of my hole
I'm FINALLY crawling out of my hole
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it is in my analysis.

you don't borrow unless you hope to make a positive return do to your borrowing.


Getting a job is IRRELEVANT to our discussion.

You will get a job whether or not you take out a school loan. It's a constant. It's a multiplication by 1. It's an addition of 0. It's IRRELEVANT. Mentioning it in your "analysis" only convolutes it further.

We're talking money you have and owe when you graduate.

When you graduate, you'll have two possible situations:

1) You'll have more money and more debt
2) You'll have less money and no debt

Maybe my demonstration was enough, maybe I should attach the spreadsheet that shoots your entire argument in the face by demonstrating that in order to break even in the long run, you have to be getting a 10.5% interest rate. I shouldn't need to attach anything. You're a business major, I'm sure your business school teaches the overcomplicated class of "MS Excel 101" and you can figure it out yourself.

I said attack it with numbers. You again attacked it with words.


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im not gonna end up bankrupt because i borrowed 10,000-15,000 dollars from the government.



No, you'll just end up with less than if you'd paid cash for school.

Scenario 1:

I put 150k away in retirement at 10% interest and take out loans to get through school. School costs 25k for 4 years, and I defer payments (not interest... you have to be very poor to be able to defer interest, but you could defer payments while enrolled) for all 4 years. My student loan is for 5%, let's say, and we'll pretend you really could defer interest on the loan for the full 4 years. Now you're out of school ready to start paying on your 25k in loans. If you pay off 5 thousand dollars per year, it will take you about 6 years to pay off 30k, which is what the 25k compounded to by then. The 150k you invested at 10% a year has compounded to 390k over the course of 10 years (4 in school, 6 to pay off the loans). Now you are debt free with 390k.


Scenario 2:

I pay for school in cash. I spend 25k of my 150k on tuition and invest the remaining 125k in a 10% return investment. Of the 25k I use 6.25k per year average on tuition, leaving the remainder in a moderate 5% money market account so it remains liquid yet stable. In 4 years I graduate debt free with a job. The 125k has grown to 183k, and my 25k for tuition grew by an additional 2k. I can move this into my 183k investment for a total of 185k invested at 10%. Now that 5k a year I was spending before to pay off student loans I can add to my principle that I have invested. Over the course of the same 6 years, I invest the same 30k I used before to pay back loans. After the 10 years has elapsed, and adjusting for compounded interest, I have 370k built up.


Well look at that... by taking out a loan to pay for school, I have made an extra 20k in 10 years over if I had just paid in cash up front. This assumes, of course, that interest did not accrue at all while you were in school. So obviously borrowing the 25k was a good idea, because you netted a 20k gain, right? Except for risk. Why is it called risk? Is it called risk because it is completely safe? No. It is risk, because you put yourself or your property in jeopardy in doing it. What happens if you miss a payment, or get laid off from your job, or your loan payment arrives late one month? For 6 years, you have a payment that you have to make no matter what. What if life happens and you have to miss a semester or two or three from school? You have to start paying on your loan, even if you don't have a job. That's 10 years you're tethered to your student loan, and life can't have any hiccups for risk of defaulting. In my opinion, it isn't worth the added stress for a measly 20k that it takes 10 years to get. Debt free is stress free. 10 years of easy living knowing your ducks are in a row and if life happens you're prepared to deal with it and you owe nobody anything... that's worth 20k over 10 years to me. Again, this assumes you do not pay any interest while in school, it does not account for inflation, nor for capital gains taxes on your money. If you throw all of those other factors in as well, after 10 years you have almost exactly the same amount whether you had borrowed for school or paid up front. The primary difference is... borrowing makes you a slave to your lender for the next 10 years of your life for little or no gain at all.



A few more wrinkles to throw out there for borrowing: the average time it takes a student to pay off their student loans is 10 years, not 5 or 6 as in my example. The longer the loan is outstanding, the more money you lose each and every year both paying interest and not investing. Also, I used a student loan amount of only 5%, a very generous number considering rates today, and also an annual growth on the investment portion of 10%, also a generous number. I skewed the results to give the borrowing option the maximum possible bang for the buck, and it still only managed to pull ahead by 20k under absolutely pristine conditions. If you throw in some of the real life wrinkles I neglected and redo the numbers, I'd be willing to bet you that paying cash for school actually comes out ahead of borrowing, and you get to live stress free and debt free the entire time.
Quote
Quote

im not gonna end up bankrupt because i borrowed 10,000-15,000 dollars from the government.



No, you'll just end up with less than if you'd paid cash for school.

Scenario 1:

I put 150k away in retirement at 10% interest and take out loans to get through school. School costs 25k for 4 years, and I defer payments (not interest... you have to be very poor to be able to defer interest, but you could defer payments while enrolled) for all 4 years. My student loan is for 5%, let's say, and we'll pretend you really could defer interest on the loan for the full 4 years. Now you're out of school ready to start paying on your 25k in loans. If you pay off 5 thousand dollars per year, it will take you about 6 years to pay off 30k, which is what the 25k compounded to by then. The 150k you invested at 10% a year has compounded to 390k over the course of 10 years (4 in school, 6 to pay off the loans). Now you are debt free with 390k.


Scenario 2:

I pay for school in cash. I spend 25k of my 150k on tuition and invest the remaining 125k in a 10% return investment. Of the 25k I use 6.25k per year average on tuition, leaving the remainder in a moderate 5% money market account so it remains liquid yet stable. In 4 years I graduate debt free with a job. The 125k has grown to 183k, and my 25k for tuition grew by an additional 2k. I can move this into my 183k investment for a total of 185k invested at 10%. Now that 5k a year I was spending before to pay off student loans I can add to my principle that I have invested. Over the course of the same 6 years, I invest the same 30k I used before to pay back loans. After the 10 years has elapsed, and adjusting for compounded interest, I have 370k built up.


Well look at that... by taking out a loan to pay for school, I have made an extra 20k in 10 years over if I had just paid in cash up front. This assumes, of course, that interest did not accrue at all while you were in school. So obviously borrowing the 25k was a good idea, because you netted a 20k gain, right? Except for risk. Why is it called risk? Is it called risk because it is completely safe? No. It is risk, because you put yourself or your property in jeopardy in doing it. What happens if you miss a payment, or get laid off from your job, or your loan payment arrives late one month? For 6 years, you have a payment that you have to make no matter what. What if life happens and you have to miss a semester or two or three from school? You have to start paying on your loan, even if you don't have a job. That's 10 years you're tethered to your student loan, and life can't have any hiccups for risk of defaulting. In my opinion, it isn't worth the added stress for a measly 20k that it takes 10 years to get. Debt free is stress free. 10 years of easy living knowing your ducks are in a row and if life happens you're prepared to deal with it and you owe nobody anything... that's worth 20k over 10 years to me. Again, this assumes you do not pay any interest while in school, it does not account for inflation, nor for capital gains taxes on your money. If you throw all of those other factors in as well, after 10 years you have almost exactly the same amount whether you had borrowed for school or paid up front. The primary difference is... borrowing makes you a slave to your lender for the next 10 years of your life for little or no gain at all.



A few more wrinkles to throw out there for borrowing: the average time it takes a student to pay off their student loans is 10 years, not 5 or 6 as in my example. The longer the loan is outstanding, the more money you lose each and every year both paying interest and not investing. Also, I used a student loan amount of only 5%, a very generous number considering rates today, and also an annual growth on the investment portion of 10%, also a generous number. I skewed the results to give the borrowing option the maximum possible bang for the buck, and it still only managed to pull ahead by 20k under absolutely pristine conditions. If you throw in some of the real life wrinkles I neglected and redo the numbers, I'd be willing to bet you that paying cash for school actually comes out ahead of borrowing, and you get to live stress free and debt free the entire time.


<3


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omg im gay


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