Is a bunch of debt now better than distributed debt in the future in terms of paying less in the long run?

Question

This might be too theoretical but it popped into my head this concept for attending University/College. If you had the ability to choose one of the following which is best in terms of you paying smallest over time?

• Cram an entire diploma into a single year and take on 30K in debt
• Distribute your diploma into 3 years taking on 10K in debt the first year, 10.5K in second, 11,025 in third (a rise in tuition by 5% per year)

Let's say immediately after graduation you get the same job and it increases every year by 2%. When the second option graduates it is making the same as the first option (i.e both are making the same amount 4 years from today). Both offer a 2.75% interest rate after graduation and both offer the same loan term after graduation (i.e 10 years after grad). Of course there is a lot of other factors but is there a right option given a certain circumstance? What if one of the constants like pay or loan term changes? What if the first option actually costs slightly more like 31K?

Answer 1

If you can earn your diploma in 1 year instead of 3, what do you do the following 2 years? If your answer is, Take a vacation, see the world, lay around the house watching TV and drinking bear, then your two scenarios end up pretty much the same. In both cases you have approximately $30,000 in debt plus accumulating interest. The only difference is what the interest rate is on the last two loans compared to the higher principal.

If your answer is, You get a job paying significant money, then getting the diploma in 1 year is clearly superior. Say you get a job paying $40,000. Then in scenario 1, after 3 years you have $30,000 in tuition expenses and $80,000 in income. In scenario 2, after 3 years you have $30,000 in tuition expenses and $0 in income.

Indeed, most people find that their income goes up over time as they gain experience. So if you start work 2 years earlier, you not only have 2 more years of income, but you have 2 more years of experience, which increases your income for every following year.

I have a 4 year degree that I completed in 3 years. At the time I thought to myself, Not only am I getting an extra year of salary, but really the extra I'm getting is not what I will make this first year, but what I will make the last year before I retire. (Okay, the reality is probably more complicated than that, but.)