Tuesday, December 22, 2015

Ashley Fleming’s Story

Okay below is a link to video of 24-year-old (Ashley Fleming) up to her eyeballs in debt (1). It is a pretty sad story if you think about it, and no doubt also one that is more than likely common with those of her generation.


What is sadder I think is the in the December 18th Yahoo article by Vanessa Sanchez, “financial aid expert Mark Kantrowitz” said “if your total student debt is going to be more than your income once you graduate, you should probably look into another school.” (1).

How do you even know what your income will be once you graduate? Okay you might have a rough idea, but it is not like the college is going to guarantee the degree will automatically yield enough to pay for the loan. Let us take Ashley’s situation…she is attending a college with a $43,000 a year tuition.

Okay let us assume for a moment the following-

1. Ashley doesn’t’ start paying the loan until she graduates.

2. She actually just went four years straight (unlike the actual story).

3. The current loan rate is 4.29%.

4. The term of the loan is 10 years.

5. The present value of all debt owed is $172,000 (4 years at $43,000 a year).

This would mean for each of the ten years her annual payment is $21,513.29. Let us assume for a moment that the debt to income ratio should be similar to that of a mortgage which most say is around 28% to 36% (2).

This would mean right of the gate Ashley would need to be earning an annual income of $59.7K to $76.8K.

Could be possible but it is not guaranteed in our U.S. society. In fact, the only legally guaranteed wage is that of the minimum wage.

All the talk we hear of college graduates making $X more dollars than non-college graduates is primarily the resultant of a social construct from the 20th Century. During the 20th Century our U.S. population shifted in educational attainment from basically grade school to high school to then college. In doing so the accepted social construct of higher wages for greater educational attainment pretty much stayed the same (i.e. grade school got you X, high school got you X+1, college got you X+2). But now with pretty much everyone going to college we have leveled the workforce to a common reality which in time will cause everyone’s wages to be basically the same (standard supply/demand economics) if not fall to the lowest common denominator (i.e. minimum wage).

The solution proposed to this economic reality will no doubt be just adding more education to the equation. If people, simply keep getting higher and higher degrees (i.e. more education) we can keep the income growth curve from collapsing. Although how higher can one go than Post-Doc degrees?
And exactly how much debt will all this cost our economy? And exactly how much sales would be required for a business to support all these highly educated Americans? Wow I hope the Chinese are willing to pay a lot for our highly educated workforce.

Now don’t get me wrong. Education is a good thing, but when tied to certain economic realities such as income and debt there becomes a distortion where the haves and haves not become increasingly obvious (as with Ashley’s story).


(1) Sanchez, Vanessa. Dec. 18, 2015. $100K in debt, 1 semester left and no cosigner in sight. Yahoo Finance. Retrieved from http://finance.yahoo.com/news/-100k-in-debt--1-semester-left-and-no-cosigner-in-sight-190859531.html?soc_src=copy

(2) da Costa, Polyana. (2011) Why debt to income matters in mortgages. Bankrate. Retrieved from http://www.bankrate.com/finance/mortgages/why-debt-to-income-matters-in-mortgages-1.aspx

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