I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to share some of the book's thoughts on student loans and earnings. Let's start with this one:
College costs have been rising at more than two times the rate of inflation, and that cost increase is being financed by student loans. Wages are essentially flat after inflation, and experts believe that the robust economic growth that the United States achieved over the past century is a thing of the past.
These two factors (college costs increasing but incomes remaining flat) are the reasons we're even asking whether or not a college degree is worth the time and cost these days. A couple decades ago it was a "no brainer" -- a college degree was almost always the better choice (over no degree.) But these days the answer is often "it depends". And what does it depend on? Basically it boils down to the costs of what it takes to get the degree and what you can expect to earn with it. The more you can lower the former and increase the latter, the more likely it is that getting a degree is a "good deal."
The book goes on to give some interesting insights into the impact school loans have on students/graduates. Here's the first:
A 2008 Yale study found that for every $10,000 in student loans students graduate with, they accept jobs that pay $2,000 more in annual salary. [It also found that] every $10,000 in student loan debt results in a 5 percent reduction in the chances that a student will become a teacher, work at a nonprofit, or take a similarly low-paying, high-karma job.
I've been saying this a long time, but these numbers bear out that it's happening: if a student takes on a lot of debt, he needs to be sure he is going to get a job that males taking on the debt worth it. (BTW, I've also been saying that if you want to go into a low-paying field you need to make sure your college debt is low to non-existent.) This is where most people that have college debt problems get into trouble -- they take on a huge amount of debt while getting a degree that doesn't allow them to earn much. It's a financial double whammy!
Here's the next finding:
A 2008 Experience Inc. survey found that 40 percent of recent graduates took a job that offered higher pay, but less career satisfaction, in order to help pay off their student loans.
Well, money is a factor in where you want/need to work -- especially if you rack up tons of debt. As such, your best bet is to keep your college costs as low as possible to give yourself (or your student) as many choices as possible.
The book lists several other findings but they boil down to one main thought: debt (in this case from student loans) limits your life in many different ways. As such, you want to limit debt as much as possible. We've known this to be true in other areas of life (think consumer debt) for quite some time, but it appears that people may be starting to get the clue that the same principle applies when it comes to student loan debt as well.
Student loans may cause people to take higher paying but less fulfilling jobs. However, I also think people are also just taking any job they can get right now. I know plenty of adults who got laid off and took a job that was 40 percent less than their previous job, and had zero job satisfaction.
I think you really need to strive to be the best you can be period. You can't just skate by and wait for retirement, like some used to do.
Posted by: Everyday Tips | October 20, 2010 at 08:59 AM
I had a feeling it was more expensive to be a student, so it's nice to see it in writing. It sounds like you have benefited greatly from reading the book. I am definitely going to get a copy myself.
Thanks for sharing your experience
Posted by: Dennis Kviklån | October 20, 2010 at 05:54 PM
I promise I'll stop posting about Princeton :-)
Seriously, I believe that there are programs where you can get your student loans cancelled (not sure what the exact term is) if you go into teaching, military, Peace Corps, or possibly other service careers.
Posted by: MBTN | October 20, 2010 at 08:03 PM
Call me cynical, but I thought that elite schools were mainly about networking not necesarily about better education.
So, if the above is true, does that mean that networking ('the old boys network') doesn't work anymore?
Posted by: Jeroen | October 21, 2010 at 06:25 AM