No, no, no! – $200,000 in debt after a degree in communications

by Grace

It almost never makes sense to incur $200,000 in student loans so you can graduate with a master’s degree in communications.

In a story about young women dropping out of the work force to go to school, this anecdote about one student going for her master’s degree in strategic communications caught my eye.

“I was working part-time at Starbucks for a year and a half,” said Laura Baker, 24, who started a master’s program in strategic communications this fall at the University of Denver. “I wasn’t willing to just stay there. I had to do something.”…

… Including the loans that financed her undergraduate education at Wartburg College in Waverly, Iowa, she will complete her master’s program next year owing about $200,000 in debt.

“I have to have faith that I will eventually get a good job that pays enough to pay my living expenses and pay back my loans,” she said, “and hopefully make me happy in the process.”

To pay off a $200,000 student loan you need a $200,000 annual salary

According to this Georgetown University report on the economic value of college majors, the median salary of a worker with a master’s in communications is about $65,000.  Mind you, that average is for all levels of experience, so a new graduate just beginning her career should expect to earn less.  When Ms. Baker begins to pay down her $200,000 student loan after she graduates next year, her monthly payments can be expected to be about $1,775.  Here’s the cautionary language that accompanies the calculation results for that $200,000 loan amount at the FinAid loan calculation website.

It is estimated that you will need an annual salary of at least $213,044.40 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.9. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $142,029.60, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 1.4.

Bad news recap

  • When she graduates, the best case scenario will be a job paying about $65,000, which translates into an estimated monthly take-home of $4,165.
  • Monthly student loan payments will be $1,775, meaning 43% of her take-home pay will go towards her student loan.  This is considered a financially risky profile.
  • Of course, this doesn’t take into account any other debt a new employee typically incurs, such as a car loan or credit cards.  And she should forget about qualifying for a mortgage until she’s in her forties.

I expect Ms. Baker plans to defray some of her loan payment expenses by taking advantage of the Public Service Loan Forgiveness (PSLF) or the Income-Based Repayment (IBR) federal programs.  But given the size of her debt, it’s likely the bulk of her loan obligations would remain intact.

If she were my daughter, I probably would have counseled her to stay at Starbucks for a while longer.

Marriage ‘penalty’ - Another thought comes to mind.  I would be quite concerned if my son were contemplating marriage to someone who owed $200,000 in student loans and whose main marketable achievement was a degree in communications.

Is this young lady another “Occupy” protestor in the making?

$200,000 in student loans - today's communications major may be tomorrow's 'Occupier'

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7 Responses to “No, no, no! – $200,000 in debt after a degree in communications”

  1. While I agree that $200,000 of debt is a ridiculous amount to get a master’s in communication, I think that the debt-to-income ratio is not the right analysis. One needs to look at debt-to-disposable-income. A low-paying job means that almost no debt can be afforded, while a CEO can support a lot of debt.

    When I bought my house, I had a debt-to-income ratio of about 4:1, but I managed to pay off the mortgage in about a decade, by living very frugally and putting almost all my disposable income into paying down the debt. (I was fortunate in that I finished my PhD with no student debt—I’d even been able to save a little in grad school by living much more frugally than most grad students.)

  2. Good point about using disposable income in the debt-to-income measure. High-income people can also get into a lot of trouble by just using the gross numbers while living high on the hog.

    I must say, you sound like an unusually frugal person. Good for you for going against the tide of wasteful consumerism!

  3. Well, I certainly hope those students are not incurring debt to get their masters in pop culture. Amazing!

  4. I disagree with “To pay off a $200,000 student loan you need a $200,000 annual salary.” Unless you’re talking about paying the loan off in 18 months or so. Most single people in America can get by on $30-40k (net) a year. That would leave $90k or so to pay down that debt. (Assuming one takes home 65% of what one makes.)

  5. ohiasia — You make a good point. Especially at higher incomes, a more lenient debt-to-income ratio is commonly recommended. However,the risk of losing a high-paying job should be considered, as well as the constraints of making an almost $2,000 monthly payment.

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