Written By Travis Hornsby, CFA®, CFP®
Updated on February 17, 2021
My wife and I visited the National WWI Museum and Memorial in Kansas City in mid-2020, while COVID-19 cases were on the decline. The trip rekindled my interest in WWI, and I ended up reading more on it.
Now, if you’re wondering what my weird interest in an ancient war has to do with you or with your student loan payment, hang around. You are going to see how it is connected shortly, I promise.
Underestimating the battle
After visiting the museum, I wanted to read more about WWI. One of the books that I picked up is The Guns of August. It’s titled The Guns of August because WWI started in August 1914. It details the earliest stages of WWI and how it was unlike anything that had happened before.
One of the things I noted from the setting of WWI is that everyone thought that the war was going to be really short. Everyone also thought that the way to win the war was to go on the offensive using old war-thought tactics and outdated weapons such as swords and cavaliers instead of the more advanced guns.
They underestimated it, and it wound up becoming a war of attrition. That means both sides tried to win by killing as many people from the other side as to wear them down.
That’s why WWI was the deadliest and most expensive battle in history.
Big incomes aren’t usually worth the sacrifice
How is WWI related to the student loan debt situation that we’re in? Well, the people leading WWI were overconfident, and that’s something I see with many people who have huge student loan debt.
For instance, many dentists assume that they’ll make a great deal of money after completing their studies and will be able to pay their student debt comfortably. While I appreciate the positivity and the high expectations, the reality is that most dentists earn an average pay of $180,000 a year.
That's not to say that you cannot earn a high income. You can be in the top 1% of income in your field of work. But it will likely require you to work 50 to 100 hours a week, be in a place where your services are in short supply (and high demand) and probably own your private practice.
It is possible to earn a high income anywhere. It's just not easy. If you want to make a lot of money as a doctor, for example, you need to live in a small town with a lot of wealthy people per capita and where you're the only specialist in the city.
Even in other fields, most people can't cope with the back-breaking hard work required to make a lot of money. Besides, it can be harmful to your health and general well-being.
Some people can do it and thrive in such an environment, but it's just not worth it for others.
Many borrowers overestimate their willingness to make such sacrifices to earn enough to save up for retirement and pay back their student loan debt.
Don’t use old tactics for your loan repayment
Going back to the WWI story, it doesn't matter how good you are with the sword if you are up against an artillery of guns and other munitions. In the same way, you cannot approach your student loan debt the same way your 60-year-old uncle or your parents approached it.
Older relatives can be quick to tell you to “suck it up, work hard, and pay up your student loan debt.” You might even be ashamed to reveal how much you owe in student debt because you’ll be made to feel like you’re irresponsible.
The truth is that student loan debt today is very different from student debt in the 70s and 80s when they graduated. While a person may have graduated with only $10,000 in student debt then, many now graduate with $300,000 to $400,000 in student debt.
Skyrocketing tuition has changed the battle strategy
I found an old article from the Journal of the American Dental Association. Do you know what the tuition for Washington State’s Dental School was in 1978? It was $1,029 per year! The tuition fee in 2020 is $55,000 for the same institution. That's a cost of nearly 55 times more in 40 years.
Here are other examples: the University of Alabama's Dental School was $1,200 a year in 1978. It's $28,000 today. And NYU dental school was $7,200 a year, and it costs $85,000 a year today.
The person that graduated in 1982 with a debt of $10,000 is completely out of touch with the problem that exists now. So, the next time your uncle lectures you about your student loan, give them these numbers, and they might leave you alone.
But the problem isn't just student loans. The problem is the wasteful, predatory, unregulated universities. Educational leaders can take advantage of not having regulations on how much they can charge.
Universities are raising the level of graduate school tuition to increase university profits and subsidize the rest of the university. And the government gives an unlimited amount of money to finance someone's education.
Outdated repayment tactics
The thing is, just like the ancient weapons of the 1800s did nothing for the WWI veterans, old loan repayment tactics are not sufficient for repaying the current level of student loan debt.
The weapons of “work hard, pick up extra shifts and get some more money, pay your highest interest loan first and refinance to a 20-year term, and keep your payments as low as possible” might not work now.
Some people will try to work 100 hours a week, or they'll take a job in a place they don't want to live because “they have to” pay off their loans.
Some people are putting off getting married, having kids, buying a house or going on a vacation because of student loans.
And that is the mentality of fighting debt with weapons from the last war.
With $1,000 a year tuition, the weapons of the last war might have worked. But to battle tuition prices now, you need a really high income, an emergency fund, diversification on income sources between spouses and confidence in your job security.
New weapons for your student loans
If you are in a situation where you can refinance and pay your student debt off, go for it.
If you have a high income, an emergency fund and job security, and your debt to income ratio is better than 1.5 to 1, then you should pay back your debt. You should refinance. And Student Loan Planner® has the best refinancing bonuses anywhere on the internet with bigger bonuses than you’ve seen before.
But what if you owe more than your income amount? Sure, you could refinance and pay it down, but you have to make significant sacrifices.
You have to ask yourself if that’s going to be sustainable. Is it going to be worth not buying a house or skipping vacations year after year?
Alternatively, you could focus on saving the maximum amount to be prepared for a comfortable retirement with student loan forgiveness along the way.
The whole point is that you can't fight the high levels of student debt today without considering the new weapons out there, weapons such as refinancing and loan forgiveness.
And that’s exactly what we do here at Student Loan Planner®: we create a battle strategy using new weapons to help you win the war on student loans. Book a consult with an expert student loan planner today.
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