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Cost Of Living Comparison With Student Loans vs. Without: NYC, Austin, San Francisco & D.C.

Are you debating whether to take on student loans to help pay for college or grad school? Are you questioning whether student loans are even worthwhile in the long run? The advantages of student loan debt has been widely debated for years, long before the past couple of election cycles.

We decided to take a different approach to this question by looking at what life is like with and without student loans, and the practical cost of living in four great U.S. cities to see how student debt impacts lifestyle.

Living with student loans

A necessary evil

Student loans are what some people like to call a necessary evil because most people need them to help pay for college. The evil is the resulting monthly payment you have after finishing college. For the academic year 2020-2021, the annual private school tuition was estimated to be $37,600, while public school tuition was around $9,400. Therefore, the total tuition cost for four years of education comes to $150,400 for private and $37,600 for public schools.

Even if you consider scholarships and grants, many students will have difficulty paying for college without going into debt.

Higher education and better earnings

Most people who have earned college degrees earn a higher lifetime income. Studies show that those with a college education have 57% higher earnings compared to high school graduates. In many instances, the advantages of a college education outweigh the disadvantages of living with student loans. This is particularly true if the anticipated annual salary for a person with your degree is greater than the entire amount of student loans you have taken out.

A significant risk here, however, is not being able to find work in your chosen field of study, in which case your earnings would almost definitely be lower than anticipated. Additionally, if you change careers and need to go back to school, this would seriously impact your ability to get by financially.

Good credit record

Student loans can assist college students and recent graduates in building their credit records and credit score when responsibly utilized. By responsibly making your student loan payments each month, you show potential creditors that you are at low risk of defaulting on future loans, including a mortgage, auto loan and more.

If you were to take out a student loan that you cannot pay back, this will harm your credit, make it harder to qualify for financing, and the interest rate will be much higher, costing you more money in the long run.

Delaying major life events

According to the Federal Reserve, the average monthly student loan debt payment is $393. This monthly payment makes it difficult for many people to buy their first home. The Fed noted that “a $1,000 increase in student loan debt lowers the homeownership rate by 1.5 percentage points.” This is based on those who attended a four-year public school. If we take the median student loan debt of $17,000, this delay comes out to roughly 3.5 years.

Student loan debt even deters some from marrying and starting families because they don't want a debt burden hovering over them as they take on familial responsibilities. Studies show a 1% delay in marriage for every $1,000 in debt. This results in a delay of 17% on average.

Cost of living across the United States

Where you live will significantly impact how easily you can pay back your student loan debt. Below is a breakdown of popular cities with favorable job markets for recent college graduates, and the annual salary you need to afford to live there.

All the numbers are gross income not net, so taxes will also play a role.

New York City

The rent for a one-bedroom apartment in the NYC averages $2,045 per month. The standard metric to use to see if you can financially survive is having your housing costs not total more than 30% of your gross income. By this guideline, you should earn at least $82,000 per year to afford housing in NYC.

When you add in the average monthly student loan payment of $393, you need to increase this salary to at least $86,600.

Austin, TX

To live in Austin, TX, you must earn roughly $60,000 annually, using the 30% rule from above. The average monthly rent for a one-bedroom apartment is $1,519.

After accounting for student loans, your annual income needs to increase to nearly $66,000.

San Francisco

San Francisco is regularly at the top of the most expensive cities to live in the U.S. The average rent for a one-bedroom apartment is $2,343. When you annualize this and budget 30% of your income for this cost, you need a salary of $93,720.

Adding in student loans, you need an income of $98,500.

Washington, D.C.

Washington, D.C. is another expensive city to live in, especially when living within the city limits.

The average one-bedroom apartment has a monthly rent of $2,508. This means you need a whopping salary of $100,320 straight out of college to survive before student loan payments and $105,120 with student loans.

While these numbers are high, it is important to remember the apartment rental numbers are average, meaning there are both less expensive and more expensive apartments.

Also, the salary estimates are just for you to get by. They do not include entertainment costs or other discretionary expenses. In other words, you are barely getting by with the incomes listed.

Finally, you also have to remember that the $393 monthly payment for student loans is average. Many people have higher monthly payments and, as a result, need to earn a much higher salary.

For these reasons, many people in various cities around the country struggle with student loan debt.

Thinking about skipping college?

Forgoing the traditional college experience is more than a financial decision, but there is certainly a pecuniary argument to be made here.

When you have lower earnings, you cannot save as much money as someone earning a higher income. Even if you consider that a college graduate has to repay their student loan debt, they still have a higher net worth over the long term compared to those who did not attend college.

Here’s what you can do.

Begin earning an income earlier

You can start earning an income earlier if you skip college and enter the workforce right after graduating high school. Compare this to those who attend college for four years, and you have a solid work history, whereas a recent graduate may have only a diploma.

Of course, as mentioned earlier, your salary will likely be less down the road, eventually putting you behind a college graduate's earnings.

Jumpstart your retirement savings

When you begin working right away, you can start putting money into a 401k plan or a traditional or Roth IRA. The ability to start saving early has a tremendous benefit. For example, if you invest $300 a month for retirement from age 18 until age 65, earning an average return of 8%, you end up with $1.7 million. If you invest the same $300 from age 22 until age 65, earning that same 8% annually, you end up with $1.2 million — $500,000 less.

The opportunity cost of working and saving during those four years is steeper than most twenty-somethings realize.

Does having student loans preclude people from saving for retirement?

Having student loans will definitely force people into saving less (or saving nothing at all) for retirement. This is a major problem because the longer you invest your money, the more it can compound and grow, so your current student loan payment is costing you significant money in your golden years.

For example, let's say you put $250 a month into a retirement account from age 22 through age 65, earning 8% annually. When you retire, you have just over $1 million. However, if you wait to start saving until you pay off your student loans a decade later and save $250 a month from age 32 through age 65, earning 8% annually, you end up with close to $473,000.

Saving something for retirement is better than saving nothing. So even if you have student loan debt, consider contributing to your 401k. Even if you are saving $100 a month, that amount can compound and grow your nest egg so that when you can invest more money for retirement, you aren't starting from scratch.

Bottom Line

For most college students, taking out a loan is inevitable. For many students, there would be no way of paying for the high cost of college without loans. But you shouldn't rely on them as the only way to cover your educational expenses.

Try to think outside the box when you look to cover college costs so you only have to take out the minimum amount required. This could mean working after high school and attending college part-time at night. In this case, you might be able to have your employer pay for a portion of your tuition.

Other options include starting at a community college, living at home instead of on campus, and/or taking advantage of scholarships and grants. The more you can do to keep your total loan amount to a minimum, the less of a burden your monthly student loan payment will be after you graduate.

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