Debt in Relation to Income

Dollar signMillions of dollars are being spent researching the issues around student loan debt – preventing unhealthy amounts of it and creating paths for students to graduate with less or no debt.

One thing that we hesitate to talk about is the following truth:

Debt only makes sense in relation to Income

Our income will dramatically affect our opinion of our debt. A friend of mine graduated from an Ivy League law school and his first job after passing the bar was with a white collar, downtown firm on a partnership track with a starting salary of $140,000. He lived well below his means (drove his old car for 5 more years) and he was able to pay off his student loans within a few years. His debt was manageable in relation to his income.

You might say ‘obviously’, but it isn’t obvious. Income simply isn’t talked about much in and around graduate school or in the many conversations about addressing student debt.

$500, $5,000, $50,000, or $500,000 of debt all may be disastrous or manageable BASED ON INCOME. If you are going to have a $250 student loan payment, you need to understand how much of your income that will consume. $250 is a percentage of your take home pay. Putting your debt in relation to your income is one reason we have tried to develop rules of thumb like this.

There is a reason we hesitate to talk about income – it can vary widely. Some variables are based on things we can control and some are not. Some of those variables that can drastically change your income potential are:

  1. Geographic

A friend of mine was offered a pastoral position in downtown San Francisco that had a starting salary of $100,000 a year. After doing some research and running his budget he discovered that even with that salary he couldn’t afford to live within 30 minutes of the church. A pastoral position in Lawrence, Kansas may pay significantly less, but cost of living is much different. Student loans aren’t geographic – they travel with you.

  1. Employee Personal Capacity

Employees have very different capacities – speaking specifically of things that are in our control.  Some people are just naturally better or have worked hard on areas of personal development such as likeability, work ethic, punctuality, working well with others, and creating positive results. 70% or more jobs are landed through personal networks, so a future employee needs to be able to build and maintain relationships. These skills will have a huge impact on future income opportunities and student’s personal networks and skills vary widely.

  1. Macro Economics

Our economy is still driven by supply and demand. If there are more attorneys’ then jobs, the cost of labor (salaries) goes down. If overall church attendance in your denomination is declining, then there are fewer dollars and jobs available. If the markets do well and overall charitable giving goes up across the country it will generally increase salaries. Furthermore, certain skills pay much better in the marketplace. In America today, a pastor who is a dynamic public speaker will earn more than a less dynamic shepherd that loves his flock just as much or more.

  1. Gender, Race, Height, Etc.

Unfortunately in the broken world in which we find ourselves, there are significant wage discrepancies for things that are well outside the control of the employee. It seems insane, but age, race, gender, and even height will play a significant impact on our ability to earn.

Some of these variables are hard to talk about. The reality is that it isn’t right or fair that some of these variables are out of the control of the employee.  It’s easier to avoid discussing injustice (or to rant against it) then to pragmatically address what to do in light of it.

For these reasons we have dropped the ball on having honest discussions with students about understanding their future income. Some of us can do different things to maximize our income potential. That may be learning a new skill or focusing on skills that pay more in the marketplace.

Others shouldn’t focus on maximizing at all. The world truly needs homemakers and small town pastors. For those called into those types of occupations, we need to talk about debt in light of their future income.

One thought on “Debt in Relation to Income

  1. Pingback: Payment Calculator Link | Graduate Free

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