Student Debt, Entitlement Attitude and Other Thoughts

I came across an interesting report titled Living With Debt: A Life Stage Analysis of Changing Attitudes and Behaviors by Lending Tree and this particular paragraph caught my eye

Like young families who view consumer credit as a reward for their hard work, college students similarly justify their elevated lifestyle demands as a reward for unpaid “work” in school. Significantly, this generationally perceived social “right” or entitlement to material goods is no longer tied to one’s current level of income or to a realistic budget that includes a savings component. Moreover, it is reinforced by college administrators and loan providers who assert that higher education is the most important investment that students will make. According to this perspective, students can and should enjoy their college social life since they will obtain a great job and salary after graduation.

The reason this paragraph stood out for me was that it could easily have been written about me while I was in grad school! As I have mentioned before by the end of two years in grad school, between our education loans, credit card debt and auto loans, we had piled on a whopping $42,500 in debt! I did my undergrad back in the home country where everyone around me was equally broke and we did not have access to credit cards. So it was normal to be a “starving student”. However, in grad school, not only was credit easily available, there was this prevalent attitude among all my friends that we would soon graduate and get high-paying jobs. So there is no need to be “starving students” anymore. In addition, both the better half and I and most of my friends had worked for a couple of years before deciding to go to grad school. And sure enough, after about a semester of struggling with the reduced income of the student life, we bounced right back into our earlier lifestyles by supplementing the difference in the income on credit. We justified that we deserved it, since we had given up well paying jobs to pursue a grad degree that would land us in better paying jobs!

Adding this sense of entitlement to the unbelievable ignorance about how credit really worked spelt disaster and it took us more than two years of completely stripped down lifestyle to get rid of our debt. Here are a few things I wish I knew then.

Separate the good debt from bad debt.
Some of the debt that we incurred, for example the education loans that we had to take out, was necessary and was in fact an investment into our future. In that sense, it would qualify as “good debt”. Since we did not go to private universities, this loan was a reasonable amount and was in fact justified based on the return on investment. But the trip to New York city that I charged to my credit card so I could visit some of my old friends or the number of gifts I took with me when I visited my family – now, that was certainly an example of “bad” debt. If I wanted to travel or buy gifts, I should have saved up for it instead of charging it to the credit card and burdening my future self to pay it off. Before accepting more credit, think if it really an investment or a dead load!

Stop being a sheep!
Everybody around me was doing the same thing. Not just people in my friends circle, but pretty much every other person on campus that I knew seemed to charge everything to credit cards. So, it didn’t even occur to us to question the complete lack of rationality of our actions. By the time we took our heads out of the clouds, the damage was already done. Stop to think – just because everyone jumps off the cliff, will you?

Take your head out of the sand.
Both the better half and I were raised to believe that debt is bad. And so when we started piling on debt, we hid it from our family. That should have triggered us to think that maybe what we are doing is not right. We should have just got our head out of the sand and seen how terribly wrong we were in the way we were handling our finances. Are you trying to hide your finances from others (other than for privacy-related reasons)?

Know how much debt you are in.
Our debt was spread out across several different accounts. So we saw it as $500 on the Citicard, $1200 on the Discover etc., but never really summed it up and saw exactly how deep we had dug ourselves in the debt pit. Also, when we looked at our debt, we completely ignored the education loans since we did not have to start paying them until after we graduated from school. The total was quite whopping! Do you know how much you really owe?

Know how long it will take to pay off the debt.
What finally triggered us to realizing the mess we were in, was when the better half started working and we started to make our first real effort to clear up the debt. Month after month, it seemed like our checks were dumped into a bottomless pit. We kept only that much of the paycheck we needed for meeting the basic necessities of life and directed the rest towards debt, but the total debt amount hardly seemed to change. I wish before we piled on the debt, we had realized how much time and effort it would require to eventually get rid of it! Use this bankrate.com calculator to see the effect of just paying the minimum amount on your credit card debt and you will surely be shaken into some action! For instance, if we paid only the minimum payment on the $42,500, it would take us 40+ years to clear up the loans, during which we would have forked over an additional $20,000 in interest payment!

If you are a student and carry any debt I hope you will learn from some of the mistakes we made and avoid making those mistakes yourself. Believe me, that iPhone that you charge on your credit card may feel cool now – but not when you have to work from 9am to 8pm every day for several months just to pay it off! I am not saying you should deprive yourself of all the good things in life. Go right ahead and indulge yourself as much as you like, as long as you can truly afford it!

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