How debt affects your outlook
— -- Over the course of your lifetime and accounting for a variety of costs and benefits, does it pay to go to college?
At USA TODAY's request, Laurence Kotlikoff, an economist at Boston University and developer of financial planning software, sought to answer the question. Kotlikoff used ESPlanner Basic, a free software planning program available at https://basic.esplanner.com.
He analyzed lifetime disposable income for four hypothetical 18-year olds:
•One who borrows $30,000 a year to attend a four-year college.
•One who borrows $15,000 a year for four years.
•One who graduates debt-free.
•A high school graduate.
To test the impact of graduating during a downturn, Kotlikoff assumed that all the college graduates earned half the median income for workers with a college degree during their first year out of college, which is $45,000.
All the college graduates ended up with more disposable income than the high school graduate, based on the median income for workers with a college degree and the median income for workers with a high school diploma. But the graduate who borrowed $15,000 a year ended up with 4.4% more spending money than the one who borrowed $30,000 a year. The individual who graduated debt-free had nearly 9% more disposable income than the one who borrowed $30,000 a year.
If the heavy borrower had the bad luck to earn the median income for a high school graduate immediately after college, which is $28,000, the graduate's spending power would be 16% lower than that of the high school graduate.
The under-earning grad also could face a lengthy period of debt, Kotlikoff says.
A new government program caps federal student loan payments for borrowers who are having a hard time paying basic living expenses. However, it's nearly impossible for a borrower to discharge student loans through bankruptcy.
If the borrower can't make payments, Kotlikoff says, the debt "just keeps accumulating. It's like debtor's prison for life."
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