September 13, 2019 By J.D. Wolfsberg:
It was in a macroeconomics course in college that my professor asked a question that I had not previously heard a professor ask, which made me wonder if the topic was taboo. He looked around the classroom and simply asked:
“So, some of your friends have started their careers in trades, foregoing a college degree, and I’m sure some of them make decent money. They will have no debt when they come out of school, and more experience than you. Do you think that your college education is worth it?”
Obviously, this question was asked to spark debate. As he mentioned, I had friends that did not attend the typical 4-year college, and they did well for themselves. Some were successful amidst various trades, while others went straight into the military gaining invaluable experience. Why the professor asked this specific question quickly became clear to me- it was because several students in the classroom had not asked, or were afraid to ask, themselves this very relevant question. Some became flustered, and arguments sounded more and more irrational as an alarming tone took over the room for the remaining twenty minutes of the class period.
The numbers indicate that a student making an investment in higher education in the United States will indeed benefit from the investment. Americans with a bachelor’s degree still earn far more than those with only a high-school diploma. The issue is not the level of income however, but instead is the growing amount of debt that college graduates are leaving with. According to the Wall Street Journal, students are graduating with an average of $30,000 in debt, with an increasing number of students graduating with more than $50,000 in debt. Many of these young persons chose to attend school and take out these loans when they were 18 years old. To some, it may seem backwards that they cannot legally have a pint of beer but they can take out a loan in excess of $50,000. Getting back to my anecdote from my junior year of college, it seemed as though some students took out the loans to go to school because they had been guided in that direction by parents and mentors. However, if they had thought about the financial burden they’d be leaving with, would this have affected their decisions such as what major they would have chosen or what university they would attend?
In the article, “10 Truths about Student Loan Debt” from Knowledge@Wharton High School outlines ten facts regarding student debt levels. This was written in November of 2018 and brings up many good points that are food for thought. Here is a brief summary of some of the points that the article brings up:
- Student debt levels have more than tripled since 2004, as of the first quarter of 2018, this number was $1.52 trillion per the Federal Reserve. College costs have increased more than four-times inflation as measured by the Consumer Price Index since 1985.
- There are about 44 million students leaving school with student debt, and this has delayed the traditional life milestones of buying a house, getting married, having children and or saving for retirement.
- Since the Great Recession, student debt has surpassed other household debts such as credit card debt, auto loan debt, and home-equity lines of credit.
- Higher education results in higher salaries, a higher tax base, and less reliance on social welfare programs.
- The college premium of making more than an individual with a high school diploma has increased since it was 75% in 2002. This is per a study conducted at Georgetown University in 2011.
- Although there are headlines flashing of individuals with more than $100,000 in student debt, this is not the norm.
- A bigger problems occurs when a student takes out a loan but then does not graduate. The college premium is typically embedded in the actual degree. Some of the more difficult situations result when students take out the loans but do not end up with the employment options that someone with a college degree has.
- Some of the income-based repayment options offered in the United States are more administratively complex than in other countries such as Australia.
- ‘Free Tuition’ programs in states need to be examined for eligible students.
- Evaluating the job market is extremely important, but solely using a college education as a stepping-stone to that first job is a poor investment over a lifetime. It will be difficult to know over time what jobs will be ‘hot’ in the job market.
While a college education is an extremely important investment, it is equally important that young adults fully understand the financial implications that go along with it. Many students may approach their college education differently if they fully understand the implications of their loans including the term of the loan, the interest rate of the loan, when the loan will start accruing interest, and the average income based on their decided major.