Something that I’ve been struggling with lately is how much I should save for the future vs. how much I should spend enjoying life today. One of the earliest post I’ve written on this blog was about an MBA student who took out extra loans to travel. Now, more than ever, I understand why he did so. Many personal finance bloggers have written on spending money to travel while they have outstanding student loans or credit card debt, so this isn’t a new dilemma.
Here’s the thing about CB’s grad school process – we don’t “technically” have to take out student loans – at least not right now. We can squeeze by, maybe with a $5,000 bridge financing from family that we will repay once I start my full-time job next year. But now I am considering taking out $20,000 so that we will not be feeling such a financial crunch next year. Before I get kicked out of the personal finance blogger club, though, let me state my case.
Here is my thought process… that begin with taking out a Stafford loan for CB’s tuition next year.
- We have around $65,000 in savings right now, that will have to last us until August/September of 2014 when I start my full time job.
- This $65,000 will have to pay for (a) my last semester of tuition at ~$22,000, (b) CB’s tuition for Winter/Spring quarters, (c) our Roth IRAs for 2014, and (d) all our living expenses until I start my job. We will be barely scraping by.
- If we take out a $20,000 Stafford loan, however, we can cover CB’s tuition and living expenses and have an extra money to play with for summer travels and for maxing out my 401K in 2014.
- 2015 will be my first full year of earning a salary since 2011, which means that if I pinch some pennies, I will be able to max out our Roth IRAs ($11,000) and pay for CB’s tuition/living expenses ($42,000) all out of my salary, which post-my max-2015-401K contribution will be somewhere around $7,000/month.
On the one hand, student loans are debt that can really weigh you down. On the other hand, I also really want to enjoy our time together this summer, take advantage of the free time I would have before I start working, and make up for the 401K contribution that I wasn’t able to make in 2013. The $20,000 Stafford loan will be $22,040 once interest (8.5%, 1% loan fees) is factored in, for a 2-year payment period.
Bottom-line, I am seriously leaning towards taking out a $20,000 student loan for CB’s graduate school (so that the money we would have spent on his tuition would go to travel in the summer and I can max out my 2014 401K).
Many of my MBA friends are in the same boat. Many of them are studying abroad and planning big trips from Asia to Australia to Europe, from Latin America to Africa, and back again. I have talked to different alumni, actually, about this very topic of taking out more student loans so you can travel. I want to make sure I’m not being too shortsighted when I forgo these opportunities, but I also want to be careful about mortgaging my future.
Several MBA alumni I’ve spoken to said that the money they’ve spent was all worth it – even though they had to take on more loans for the travel portion than they would have otherwise. After all, most of us get good jobs after graduation that will allow us to pay off the loans. And once you start working, the vacations get really compressed and it’s rare to be able to travel with your friends or significant other for weeks on at a time. One alum, however, offered a slightly different perspective – he said it was easy to get carried away during school, continent-hopping every break. The experience, he said, was phenomenal, but the cost is pretty heavy as well. And now that he has been out of school for 5 years and working hard to pay off his student loans, there are moments when he wishes he would have spent a little more conservatively during school.
After I graduate from my program, the only debt we have are undergraduate college student loans at ~$18,000 (at a weighted interest rate of 2%) and a ~$2,500 car note (5%) that we are not in a hurry to pay off. Taking out more student loans when we could have technically scrimped our way through sounds like a terrible personal finance decision, but I’m thinking it’s a good life decision. I am going to think this through some more…