Student Debt Crisis Teach-Out

The following reading outlines one parent’s experience helping her son understand the impact of student loan payments as he debated which university he would attend for his undergraduate degree. This reading was written by Holly Derry, Associate Director of Behavioral Science at the University of Michigan’s Center for Academic Innovation.

What does it really mean to pay back student loans over 10 years?

When my son was applying to college, he was interested in four prestigious universities – two in-state and two out-of-state. My adult brain appreciated that all four schools would provide him with an excellent education, but two of them would cost nearly twice as much, simply because of his ZIP code, because in the United States, out-of-state tuition costs significantly more than in-state tuition.

I wanted to help his younger brain understand this as well, but I knew that stating facts wouldn’t be enough: “tuition there is $20,000 more per year” or “you’ll have $50,000 in debt if you go there.” When numbers get too big, our brains can’t really comprehend them.

So I tried to devise a way to help him truly understand the impact of in-state versus out-of-state costs. I created a spreadsheet that simulated two monthly budgets after graduating – in other words, during the time he would be repaying his loans.

In my spreadsheet, I first added the things I held constant:

• Income: he wanted to be a physical therapist, so I found average monthly take-home pay for physical therapists.
• Expenses: I made educated guesses about monthly costs of rent, car insurance, gas, groceries, entertainment, and so on.
• Graduate school loans: Since he wanted to be a physical therapist, I also estimated monthly graduate school loan payments (but held them constant).

I varied only one item: monthly undergraduate student loan payments.

I explained the whole spreadsheet and said, “Imagine it’s eight years from now and you’re a physical therapist. If you went to college in Michigan (where we live), you’d have $1000 left over every month. If you went to college in Indiana (a different state), you’d have $500.”

His first reaction: he thanked me. He thanked me for taking the time to explain it to him and preparing him in this way to make the decision. He also wondered why high schools don’t teach students about this.

His second reaction: “Well… I’m not going to Indiana.” I was prepared to give him more scenarios like, “Now imagine your car breaks down and it costs $2,000 to fix it. What would that mean in each scenario?” or “It’s July and you want to fly to Washington for a vacation…” But I didn’t even need to do that. He got it. He concluded, “They’re both really good schools… so I don’t really know what I’d be paying that much extra for.”

Would I have let him go to Indiana if he’d wanted to? Maybe… but thankfully I didn’t have to find out.

If you’re interested in trying out the spreadsheet yourself, you can find it below:

• Google Sheets - a copy of a spreadsheet will be created automatically