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Limiting downside risk

Chris Farrell May 10, 2011

Question: My wife and I are both college graduates, and are both stuck in dead end hourly jobs with a fair amount of student loan debt (~50k between us). I’ve decided to start my own garage business later this month (on top of the current gig I have), while my wife is going back to school, taking a few online classes. She’s found an area of study she’s really passionate about in the health care industry, but she can only handle a few credits a semester, which will take forever to complete.

So the situation is this: I’m all about investing in yourself to get what is important to you, while she’s debt-phobic. I think it’s a better idea for her to quit her job that she doesn’t like, get some more loans, and smash out the second bachelor’s in a couple years, she’s not enthusiastic. We have no debt outside the student loans, though we have been using IBR to help out.

So, which of us do you feel is right-er (without knowing all the myriad of details you’d need to make a real decision). Joe, Fort Collins, CO

Answer: Here’s a suggestion about how to think this through: It’ isn’t a question of who is right-er but really an issue of risk management. You don’t need me to tell you that starting your own business out of your garage is a risky undertaking. Borrowing money to get a degree is also risky. You don’t really know if the investment will pay off or not.

You’re upping the risk ante in your household if you start your business and your wife quits her jobs and takes on more student loans to get her degree. Taken altogether, it’s a real roll of the dice.

What if you took a two-step approach to better manage the overall risks? Your start-up gets priority for now and her income helps support the household. (By the way, you can reverse this with her degree getting the nod first and the garage business second.) I would encourage her to keep adding credits on the side if she has the time and energy. It should shorten the length of time she’ll need to take off to get the degree.

When your business is up and running you’ll then support her so that she can pursue her dream full-time. Much of your cash flow will go toward limiting how much she has to borrow to get her degree and jump start her career. You already have a lot of student loan debt.

How does that sound?

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