Here's one topic I'm really sick of hearing about: how people are leaving college with boatloads of debt that make living their lives difficult. Here's the type of scare-tactic quote I see on this issue over and over:
Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time, financial experts fear.
Oh my! You mean people will have to sacrifice eating out and other necessities to pay for college? This is criminal!!!!!!
Puh-leaze. Give me a break.
What I especially love about this article is the example they use:
Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, owes $150,000 in private and government-backed student loans.
Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.
"I could never buy a house. I can't travel; I can't do anything," she said. "I feel like a prisoner."
She commutes now to her Legal Aid job in Kalamazoo, but Cole said she may need to eventually get a job at a law firm to make ends meet.
"I wanted to do something with my life and I went to law school," Cole said. She opted for legal aid work right after graduation in 2005.
"I feel real connected to this work, I really enjoy it and want to stay involved. Unfortunately it's nearly impossible to get ahead. I can pay my bills and that's about it," Cole said.
A native of Saginaw, Cole has bachelor's and master's degrees in Spanish from MSU. But she shouldered most of her student loans -- $100,000 -- to pay for law school. Although her federal student loans have a low interest rate, under 3 percent, the private loans from a bank carry 8 percent interest.
The piece goes on and on about how much college costs, how much people have to borrow, how they don't have a life and can't do the work they want to do, how it's not fair and blah, blah, blah. What a load of junk!
Here's my take on this situation:
1. Yes, college is getting more expensive. As such, we need to take steps to make it more affordable. For instance, parents need to reign in their spending and work on saving more for their kids' college expenses. And kids need to do what they can -- get good grades and be active in high school so they can earn scholarships. In addition, they both need to look for creative ways to pay for college. I happen to have tons of ideas on all these issues. Go to my college category and scroll down the list. There's lots of stuff there to save you a bundle of money.
2. Though college costs a lot, it's worth the investment. Let's say someone would tell you, "give me $40,000 and I'll give you $1 million back." Do you think this is a good deal? I do. And that's what happens when most people go to college -- they end up earning way more than what they would have otherwise and way more than the cost of college.
3. People need to balance the amount they borrow with the amount they can potentially earn with the degree they get. I detail this thinking in How Much College Debt is Too Much? but the simple rule is the more you expect to get out, the more you're able/willing to put in.
4. It is fair, so quit complaining. When people go to college, they know what they're getting (a degree in something), what they're paying for it, and what they'll likely be able to make when they get out with that degree. Where's the unfairness? What really gripes me is that people think they can pay/borrow whatever they want and then take whatever (usually low-paying) job they want to and that should be "fair." Life doesn't work like that, people.
Now for the example above. Let's review what Kristin did and how she could have done better than end up with $150k in debt:
1. She should have thought ahead. Did Kristin really think that she could earn enough working in legal aid to pay back $150k? Nope. I guarantee she didn't think about it at all. For that matter, it looks like her undergrad degree racked up $50k in debt. Seems she didn't think about that in advance either. If she would have considered what she'd be earning before she enrolled in school, she probably would have either decided on a different career or a different school.
2. She paid way too much for school. Where'd she live, a ten-bedroom house? This is Michigan State she went to -- not Harvard. How could someone rack up such large debt going to Michigan State law school? I guarantee you she could have gone to a much cheaper school and gotten the same job she has now with legal aid.
3. She didn't save in advance or (it appears) work during school. Why not? Is it because a law degree demands too much effort? Well, I worked while I got an MBA and I don't think a law degree is that much (if any) harder.
4. She probably used the same lack of decision-making when she got her undergrad degree. (I'm guessing on this one based on what she did (or didn't do) when she got her law degree. There are a lot more opportunities to save money on an undergrad degree and while she would still have a ton of debt from law school, she could have knocked off up to a third of her debt if she'd applied the above principles when she got her first diploma.
Ok, this rant is coming to an end. I know that college costs are getting higher and tougher to pay for. That's all the more reason we need to plan for how to minimize them and pay for them so our kids don't leave with a boatload of debt. I'm all for reading articles with these sorts of ideas. But I really am starting to hate the abundance of these "I made stupid mistakes in borrowing for college and it's not fair" articles.