Floor 19: Consider How You Got Into Debt

Aunt DebtFreeJD recently sent me a very interesting article: Why Do Harvard Kids Head To Wall Street?  The article, written a little while ago by James Kwak, a 2011 graduate of Yale Law School, discusses how kids at tippy-top Ivy League universities find themselves on a treadmill leading to Wall Street.  It’s easier to stay on the treadmill than jump off, and so they find themselves at Goldman Sachs (or some equivalent) after graduating.  And then, they’re still there.  And still there.  Kwak writes:

Sure, there are self-parodying, economically delusional, psychotherapy-needing,despicable people on Wall Street[.]  But there are also a lot of people who went there because it was easy and stayed because they decided they couldn’t afford not to and talked themselves into it.

There is also an equivalent treadmill for graduates from top law schools (which is discussed a bit in the article).  It goes like this:

  1. Get into Ivy-League law school
  2. Summer at a huge firm
  3. Graduate with north of $150,000 in loans
  4. Begin working at huge firm
  5. Make a lot of money
  6. Spend most of it
  7. Rinse and repeat
  8. Keep going with steps 5-7
  9. Retire

I don’t think there’s anything at all wrong with this.  Really.  Zilch.  Zero.  But if you’re on a treadmill, I think you should at least realize you’re on it, and make the conscious choice to stay on.

Law school loans are also a treadmill.  Here’s how I got into a huge amount of law school debt:

  1. Got into law school
  2. Went
  3. Took out a bunch of loans to pay tuition
  4. Woke up a few years later, and realized the loans were MOSTLY ALL STILL THERE

Loans seem like an easy treadmill.  You take them out.  The money seems kind of like Monopoly money.  You send off a check each month.  Painless, right?  Until you realize how much money you are spending over the lifetime of the loan!

Let’s take my largest remaining loan.  $44,687.65 at 8%.  Compounded daily.  Over the 10-year life of the loan, this is going to cost me north of $100,000!!!!!!!!!

When I figured that out, my first reaction was: @#$%#^@$#$!!

My second reaction was: Absolutely NOT.  I’m just not going to do it.

Thus, I’m jumping off this treadmill.  Just identifying that I was on it was totally transformative.  And it’s kept me on the lookout for other treadmills I might be on without realizing it.