Taking on 120k of debt for engineering school EE or Aero worth it?

[harkkam]

Hey guys I've gotten accepted into RIT Rochester Institute of Technology for electrical engineering and Embry Riddle for Aerospace engineering. I'm a non traditional student aged 28 with a BA in Econ who always had a passion for engineering. I am still making up my mind between EE or Aero.

I want to go into engineering for two reasons: job stability (more than the field that I'm in) and intellectual enjoyment. I took calc 1 and calc 2 and physics 1 and 2 in undergrad and did really well so I would be okay with the heavy math just in case anyone is wondering.

Most of my aid is in the form of loans and that comes to about 30k a year in loans with the rest covered by need based aid. 30k * 4 = 120k over the course of 4 years.

My question is, I've been reading about engineers being laid off and outsourced and having trouble finding employment especially when they are older. I've read so many posts about how hard its gotten for engineers to find jobs. I know the BLS the gov puts out is really not indicative of the reality on the ground when it comes to job hunting and job stability.

Unlike medicine where the loans are very large but the pay and job stability is there to service the debt. I don't know if the same can be said about engineering.

Am I taking too big of a financial risk? I'm scared that at my age at 28 with a 120k loan on my head that it doesn't make sense and that I should just keep working in finance, even though the threat of losing your job is there all the time, I won't have a loan on my head

 

[verty]

Remember that loans accrue interest. It starts at 120k, what's it going to be in a few years? This could drag on and on.

 

[ModusPwnd]

One thing to remember is that if you have federal loans you do income based repayment and only pay back what you can afford. If you make a lot of money, you have to pay it all back. If you dont, you only have to pay a portion of it back. My wife and I have quite a bit of loans for 4 degrees between the two of us. We pay only $40 a month, which is less than the interest alone. After 25 years it will all be forgiven. Thats only 12,000 worth of payments, unless we manage to make more money somehow. (also, since we are only paying a portion of our interest all of our payments are tax deductible) Many (maybe most) students will never have to pay off their loans in full.

My other thought is, is that for tuition or to subsidize a standard of living? Don't you plan on working while doing your degree?

edit - besides these options you have... If you plan on paying it all back I don't think an engineering degree is worth 120k. The engineering program I am working towards only costs about 40k...

 

[JakeBrodskyPE]

Engineering has been a very stable source of employment in the past, particularly for Electrical Engineers, but less so for Aeronautical. However, as they say in finance, past performance is no guarantee of future returns.

So you're looking at $120k? That's a hell of a debt load. Starting engineers can make around $50k, and typically are making about $100k with ten years experience. However, the payments on a loan that size will have you living in a trailer park for many years.

There are other ways to get your engineering degree. I went to school at night and worked a full time job during the day to support my habit. It took me twice as long, and it limited my social life, but I graduated with no debt.

I suggest you explore other options.

 

[SteamKing]

If you have been accepted at RIT and Embry Riddle, that's OK; but with a tuition bill of $120K it might be worth your while to see if there are schools which have an equivalent reputation (if not better) which might not cost this much. Remember, schools have to compete for students, and it might be worth your while to see if there are other schools which might be cheaper.

After all, this is a purchase equivalent in cost to buying a house. Would you take the asking price for a house straight up and not negotiate? Would you try to find a cheaper house which meets your needs?

With regard to past performance, in this case it cuts both ways. The school may provide you with an opportunity for an engineering degree, but if something happens to you, say you cannot complete the course for some reason, will you be able to sustain all or part of this extra debt?

 

[ModusPwnd]

...but if something happens to you, say you cannot complete the course for some reason, will you be able to sustain all or part of this extra debt?

As I posted above, you are not required to pay loans you cannot afford. At least if you have federal loans that qualify for income based repayment. This is a sort of student loan bailout that was implemented a few years ago. Under income based repayment your payment responsibility is 15% of your above poverty level income.

 

[Locrian]

So I've done some mathamagic for you.

My assumptions:

• You graduate and start work as an engineer at 33 with 120k of debt
• You work until 65
• Your income as an engineer starts at 51k and increases at 7% annually but caps at 85k
• 5% discount rate, which includes inflation
• You pay your student loan back at the Income Based Repayment value (15% of income minus FPL)
• The student loan is forgiven at 25 years
• FPL is 15k for your household

My result: Getting this degree for 120k is the equivalent of skipping the degree and working for the next 37 years for $37,000 a year (with no raise).

What this means is that the opportunity cost of not working for four years combined with the student loans makes your $85k a year job look (and feel) like a $37k a year job.

Lots of assumptions there, but you’d be surprised how insensitive that value is to most of them. If you want me to rerun it with different ones, let me know. But the response may be slow.

Also note that I’ve left out an important consideration – taxes! Yes, you’ll be able to deduct the student loan interest you pay, but that won’t remotely make up the difference, and you'll be paying more as an engineer, further lowering the NPV of the investment. An estimate that included taxes would be less than the $37k I note here.

In my opinion it’s a terrible idea. Get a job for $45k or so and be an engineering hobbyist. Join the Coast Guard and have them pay for your degree. Take JakeBrodskyPE's advice (never a bad idea) and work during the day and get your degree at night. There are more than a few workplaces that may even chip in.

Just don’t go into 120k of debt (or anything remotely close to that). It’s a bad idea.

No, it's a freaking terrible idea.

 

[D H]

As I posted above, you are not required to pay loans you cannot afford.

This is very bad advice.

harkkam, your goal is to get a reasonably good job with your engineering degree. An initial salary of $50 - $60K/year is reasonable for a degree in electrical and aerospace engineering. You will not be able to take advantage of hardship factors with that kind of salary.

That $50-60K/year means that your $120K loan will be equal to at least two years of pretax income. Call it at least three years after tax. You have to have a place to live (which costs money), have to eat (that costs money, too, even if you eat noodles), and you have to save a bit. You also need a bit of extra money that you can spend on just having fun. All work and no play makes harkkam a dull boy.

You will not pay that loan off in three years. To make matters worse, interest will start accumulating from day one. That makes for a very stiff debt burden, even with very favorable interest rates. (And watch those interest rates. They can keep you in debt for a long, long time.)

You should take a serious look at state schools that cost a lot less than $120K and you should look into working part time to keep that debt burden from eating you alive.

 

[ModusPwnd]

Its not advice, its how the student loan system works. If things go bad (like in the situation I quoted, or otherwise) you will not be required to pay off all your loans. This is a safety net for students that actually exists and a large number of students take advantage of it.

 

[TheAustrian]

In my opinion, it is better to keep your job and study a Masters degree in something else Part Time. There is absolutely no job safety in Engineering, as soon as you are no longer needed, because the project is finished, you're laid off. It's expensive to keep Engineers around if they aren't really needed.

[EDIT]

Strongly agree with the post below me. Where I live, you could buy 2-3 houses with that amount of money.

 

[micromass]

As I posted above, you are not required to pay loans you cannot afford. At least if you have federal loans that qualify for income based repayment. This is a sort of student loan bailout that was implemented a few years ago. Under income based repayment your payment responsibility is 15% of your above poverty level income.

OP, please ignore this person. Going into debt should never be a thing to take lightly. A debt of 120k is something I would personally never try to go into.

 

[D H]

Its not advice ...

Taking on a huge loan anticipating that you *will* come out a pauper making minimum wage is the essence of bad advice.

harkkam does have a non-pauper backup option, which is to resume working in the field of finance after not making it in the field of engineering. Per his own writing, he might well be unhappy with that option. He will be an unhappy finance office saddled with a huge loan debt that he can't escape. Assuming his backup option is to be a pauper who is willing to remain a pauper for 25 years to escape the debt is very, very bad advice.

Much better advice is to assume he will be successful in his goal of working as an engineer and seeing where that take him. After all, most engineering majors do get well paying jobs in engineering. However, that optimistic assumption doesn't necessarily lead to a pretty place. That very hefty debt burden now becomes inescapable.

 

[D H]

[EDIT]

Strongly agree with the post below me. Where I live, you could buy 2-3 houses with that amount of money.

Where harkkam lives, that $120K is about 1/3 of a house. There's nowhere in the US where you would want to live where you could buy 2-3 houses for $120K. Nowhere.

 

[TheAustrian]

Where harkkam lives, that $120K is about 1/3 of a house. There's nowhere in the US where you would want to live where you could buy 2-3 houses for $120K. Nowhere.

Where I originally come from houses also start from over $300k, but where I am now, houses start from under $50k. Either way, the fact that from $120k it is possible to buy multiple homes illustrates the severity of the size of that debt which would have a questionable benefit, if any.

N.B. I'm not from the US, and would not want to live anywhere in the US either way (due to safety and other considerations).

 

[ModusPwnd]

Taking on a huge loan anticipating that you *will* come out a pauper making minimum wage is the essence of bad advice.

Its not anticipation, its down-side protection in case things don't work out. You might get sick, the economy could tank, you might not complete the program and make what you want or did... If something bad happens and you don't get the cheese at the end of the maze your student loans will not drive you to poverty and they will not make you a "pauper" of any sort. This is the way student loans work and whether you like it or not it does lessen the risk associated with them. Ignoring the way student loans actually work is bad advice...

 

[AlephZero]

Ignoring the way student loans actually work is bad advice...

Assuming that "the government" (whatever the correct US terminology is in this situation) will never change the rules is also bad advice. Politically, "increasing interest rates on student loans" doesn't count as "raising taxes"...

Assuming the rules of any financial game plan aren't going to change for the next 37 years is almost a guaranteed high risk strategy.

 

[ModusPwnd]

Thats true, it could be repealed or it could be made even more forgiving. But for now it does exist and it does mitigate risk associated with student loan borrowing. Generally, there are lots of safety nets for borrowers of all sorts. Right or wrong, the chance of becoming a "pauper" due to students loans is low (or zero). IIRC, something around half of all borrowers are not on the standard 10-year plan. Its not crazy to think that a new borrower might not be on the 10-year plan and will take advantage of some kind of financial hardship program.

But Ill reiterate that I do think the loans do seem too high for the degree in this case. I think you can have a similar chance at financial success with a much lower tuition bill.

edit - also, I think that if anything, income based repayment will become the standard form of repayment. That seems to be the way the wind is blowing.

 

[Travis_King]

One thing to remember is that if you have federal loans you do income based repayment and only pay back what you can afford. If you make a lot of money, you have to pay it all back. If you dont, you only have to pay a portion of it back. My wife and I have quite a bit of loans for 4 degrees between the two of us. We pay only $40 a month, which is less than the interest alone. After 25 years it will all be forgiven. Thats only 12,000 worth of payments, unless we manage to make more money somehow. (also, since we are only paying a portion of our interest all of our payments are tax deductible) Many (maybe most) students will never have to pay off their loans in full.

My other thought is, is that for tuition or to subsidize a standard of living? Don't you plan on working while doing your degree?

edit - besides these options you have... If you plan on paying it all back I don't think an engineering degree is worth 120k. The engineering program I am working towards only costs about 40k...

I don't think you should take this for granted...I know folks who graduated with 120k in loans and have to pay a ton of money each month. And are responsible for paying it all back. I don't know what program ModusPwned is enrolled in. Maybe he can elucidate.

From my experience and anecdotal evidence, federal loans do not cover even a moderate portion of 120k over 4 years. A large majority/portion of these loans are usually private loans which aren't so lenient toward hard times.

 

[JakeBrodskyPE]

I think that if anything, income based repayment will become the standard form of repayment. That seems to be the way the wind is blowing.

That it may be (for now), but it does not indicate what quality of life you'll have even if it is income based repayment. My original advice about going that far into debt for an engineering education still stands.

There are many people with heavy student loans out there right now who can not afford to buy a house or a car and who are living from pay check to pay check. The notion of raising children is almost impossible for them because they know they can't afford it and at the rate they pay off the loan, that day may never come.

Kudos to harkkam for asking this question in the first place. It is a very smart thing to be asking.

I don't have any better advice than to avoid the debt, even if it means you have to attend at night, spend your weekends doing assignments, and take twice as long. Just because these debts are subsidized by the Federal Government does not mean that it is always a good investment.

 

[SteamKing]

As I posted above, you are not required to pay loans you cannot afford. At least if you have federal loans that qualify for income based repayment. This is a sort of student loan bailout that was implemented a few years ago. Under income based repayment your payment responsibility is 15% of your above poverty level income.

That may be true, but currently, if you declare bankruptcy and have outstanding federally guaranteed student loans, you can't discharge them automatically as a result of the bankruptcy. You have to file a petition with the bankruptcy court and show hardship:

http://www.studentloanborrowerassistance.org/bankruptcy/

In any event, it's a complicated process to resolve this debt if you can't afford to make the payments.

 

[jkl71]

I wouldn't even consider getting 120k in debt for engineering (doctor maybe, but I haven't really thought about it).

 

[harkkam]

Thank you all for your input, I really appreciate all the time people took to write out well thought out responses.

Another thing I would like to add is that I also got accepted into the University of Buffalo for aerospace and the total cost for four years comes out to 54k.

The reasons I left this out from the original post is that I didn't consider the university of Buffalo as being such a great school for aero engineers vs. Embry Riddle.

But taking debt into consideration perhaps engineering at University of Buffalo makes more sense at 54k vs 120k.

 

[Vanadium 50]

ModusPwnd is giving terrible advice, and for some reason he is doubling, tripling and quadrupling down on it. The facts are:

1. You can't take out $120K in federal loans.
2. An engineer's starting salary is too much to plead hardship anyway
3. An engineer's starting salary is too little to pay off a loan like this in a reasonable timescale. (Which is probably the underlying cause of 1)

 

[Jozape]

I could get about 10k in federal loans if I want this year. I think that is the maximum. Slightly very short of the 30k you would need per year, assuming you were going to graduate in 4 years.

 

[2milehi]

One thing to remember is that if you have federal loans you do income based repayment and only pay back what you can afford. If you make a lot of money, you have to pay it all back. If you dont, you only have to pay a portion of it back. My wife and I have quite a bit of loans for 4 degrees between the two of us. We pay only $40 a month, which is less than the interest alone. After 25 years it will all be forgiven. Thats only 12,000 worth of payments, unless we manage to make more money somehow. (also, since we are only paying a portion of our interest all of our payments are tax deductible) Many (maybe most) students will never have to pay off their loans in full.

My other thought is, is that for tuition or to subsidize a standard of living? Don't you plan on working while doing your degree?

edit - besides these options you have... If you plan on paying it all back I don't think an engineering degree is worth 120k. The engineering program I am working towards only costs about 40k...

Awesome, so I only rang up $3500 in a college loan (worked summers, lived at Mom and Dad's while getting a degree) and paid it back in less than 6 months (no interest).

So I get to pay for your degree(s) with my tax money. This country is f'ed up.

 

[johnqwertyful]

There's absolutely no reason to take on that much debt.
Go to community college first, get financial aid.

There is no reason to take on that much debt, period.

 

[PhysicsLad]

You are never old to learn, but that's a lot of money, at least from a southern european's point of view...

If I were you, unless somebody paid for my degree, I would consider moving somewhere where quality higher education was affordable for me.

 

[crador]

As physics lad says, you can get many degrees for free in Germany or other European countries. You could also work here in America while completing your degree online (and perhaps receive funding from your employer) as previously said.

Whatever you do don't waste 4 years and 120k on something you can do for free or in your spare time.

 

[rfdave]

One thing to remember is that if you have federal loans you do income based repayment and only pay back what you can afford. If you make a lot of money, you have to pay it all back. If you dont, you only have to pay a portion of it back. My wife and I have quite a bit of loans for 4 degrees between the two of us. We pay only $40 a month, which is less than the interest alone. After 25 years it will all be forgiven. Thats only 12,000 worth of payments, unless we manage to make more money somehow. (also, since we are only paying a portion of our interest all of our payments are tax deductible) Many (maybe most) students will never have to pay off their loans in full.

My other thought is, is that for tuition or to subsidize a standard of living? Don't you plan on working while doing your degree?

edit - besides these options you have... If you plan on paying it all back I don't think an engineering degree is worth 120k. The engineering program I am working towards only costs about 40k...

Before you get all happy and stuff about only having to pay part of the money back, and having a bunch of it forgiven, you might want to talk to a tax professional (Not a hack from H&R Block, but a real One) about what happens when you have that student loan debt forgiven. That could well show up as income on a 1099, and then the IRS will be very interested in you paying taxes on this.

 

[ModusPwnd]

Yea, you do have to pay taxes on the forgiven portion after the 25 (or 10) years. You don't need a tax professional to find that out. Its still but a small fraction of the debt and thus I am still happy I only have to pay back part of the debt. (Unless I manage to get a high paying job, in which case I would be happy to pay off my loans.)

 

[ModusPwnd]

So I get to pay for your degree(s) with my tax money. This country is f'ed up.

Thank you for your support. There are those that subsidize, and those that are subsidized. If I could manage to get a high pay job, I would. But since I can't I shall be in the latter category.

But actually, taxes pay for most of most people's degrees. Public schools are subsidized for even full tuition payers. My undergrad full tuition was only 1/3 of the "true" cost, the other 2/3 were subsidized by taxes. My second school was more like 50/50.

 

[ParticleGrl]

Awesome, so I only rang up $3500 in a college loan (worked summers, lived at Mom and Dad's while getting a degree) and paid it back in less than 6 months (no interest).

When did you get your degree? Its hard for me to believe that someone can self-fund an education in today's tuition environment just by working over the summer and living at home. Even mid-tier state schools have grown quite expensive.

In the state in which I did gradschool, the flagship university (which has the decent engineering program) cost about $20k a year in just tuition for engineering students(for residents). This increased tuition for engineering programs seems to be fairly common. Including fees (including lab fees) and books, you are probably talking at least $25k for attendance of an engineering or science program. If you don't happen to live in the city its located, you'll pay another 10k or so in housing, maybe more.

Work study jobs paid $8.50 an hour and were capped (the cap was based on an individual student's financial aid package), and any money made in jobs outside of the work-study program reduced your eligibility for need-based financial aid (the first thing removed from your financial aid eligibility were grants).

A student working 15 hours during the school year and full time over the summers might make ~10k in a year. This would still leave them in $15k a year to cover, either by financial aid or from their parents, even if they are living at home. And this is tuition for the state school.

When I was in college, I worked full time year round (taking nights and weekends at a restaurant) and still graduated with $44k in debt.

 

[2milehi]

^^^^ I got my degree in 1995 for The Colorado School of Mines. I was a non-traditional student and I started my BS degree pursuit when I was 23 years old. I was able to get a grant (Pell I believe) that paid for about half of the tuition and I had about $5,000 saved up when I started college.

I looked at the tuition for CSM now and see the cost is $17k a year.

 

[SteamKing]

Every school is going to have a different set of financial characteristics associated with attendance. One school, Cooper Union, made news recently because it was dropping its 'free tuition' for undergrad attendance:

http://www.nytimes.com/2013/04/24/n...dergraduates-tuition.html?pagewanted=all&_r=0

While the number of such schools is dwindling, C-U was not the last such school in this country. This is why sources like the US News & World Report 'Best Colleges' report is a handy guide to have.

There is still only one curriculum and one degree offered, but if you want to study naval architecture & marine engineering, and not pay a lot to do so, my alma mater, the Webb Institute, is still 'tuition free', although you get to pay a room & board fee (all students live on campus) and you've got to buy your textbooks:

http://www.webb.edu/

Webb celebrates its 125th anniversary this year, and the 'tuition free' feature derives by benefit of the financial endowment of its namesake and founder, William Henry Webb. (Caution: shameless plug)

One of the benefits also deriving from this windfall (more valuable in years past) is that all paper for schoolwork (loose leaf, drafting, graph, etc.) was available to students at no charge. With the rise of computers, I'm not sure how much paper is used nowadays by the students.

So, it is still possible, but ever more unlikely, that one can find an almost free college education in the US. Certainly, there is a wide range of cost one can pay to obtain the same degree at different institutions, which is why it is important to do careful shopping for an education as one would do when purchasing any large-ticket item, like a house or a car.

 

[AsianSensationK]

Yea, you do have to pay taxes on the forgiven portion after the 25 (or 10) years. You don't need a tax professional to find that out. Its still but a small fraction of the debt and thus I am still happy I only have to pay back part of the debt. (Unless I manage to get a high paying job, in which case I would be happy to pay off my loans.)

If you're only paying $40 a month for 25 years on a 120K debt, there will be more than 120K in debt forgiven. The federal government is tacking onto your debt each month you don't meet the interest on your debt.

Think about it this way. 120,000 in debt at a 2% rate is $200 in interest. If you don't pay the full $200 in interest, your balance grows by what you didn't pay. In this case, $160 a month. At the 6% rate I think student loans are more likely to be at, interest is 600 a month. The payment you'd need to pay down that debt in the standard 10 year timeframe is $1104 a month at the 2% rate and $1332 at the 6% rate. Those numbers start looking like new york rents the higher you go.

So the most important tip for a thread like this is everyone here needs to learn to use the excel finance functions and use them to help make big financial decisions. The federal government will currently help borrowers with income contingent repayments to better match their monthly income (you'll pay 10% of what you make if you're poor), but that really doesn't change the term of the loans you agree to. Interest will continue to get tacked on to the balance each month you pay less than what you owe.

You don't want to set yourself up to borrow a whole lot more than what you could reasonably pay back each month under the standard repayment plan, which for most people is more in the realm of 30K or so (i.e. around 300-400 a month). So I think the best advice is to pick a cheaper school and figure out how to pay as much as you so you borrow the least you can.