Last week, President Barak Obama announced a bill of rights for students who borrow for college, and promised that clarifications and increased repayment options were soon to follow. Reading between the lines, many see this is another step toward increased student loan forgiveness, a burden that will then be borne by the rest of us.
I find this deeply disturbing, as I have lived simply and avoided debt to make my own way life, first in the military, and later in the working world. I’ll be damned if I paid for my education with 5 years of enlistment while a student with an interdisciplinary degree in religious and gender studies sees any part of her $100k student loan bill forgiven.
The difficulty of escaping student loan debt
As some of you readers know, currently it is nearly impossible to discharge college debt. It will follow you for a lifetime, and the servicers of that debt can garnish all forms of income to see it serviced. Many of those would like to see those policies change, including the 12% of student debt holders that are currently delinquent and the 44% of those loans that are currently being deferred; More than half of the trillion dollar plus college bill is not being paid back, making it one of the most epic bubbles of all time if the government begins charging those loans off.
Student loan debt is one of my deal breakers when dating. It’s a hell of a thing to meet a woman you like, see her for a few months, and then find out she has $100k (unemployed with a master’s degree in screenwriting) or even $140k (barista with a master’s degree in economics).
I’m not saying that debt is always bad. There is nothing wrong with a surgeon carrying a quarter million dollars in student loans or a school teacher with a debt load of $25k, but it is all about the proportions; excess debt in many ways could be thought of as economic obesity.
How to avoid it
So how do you stay financially fit at determine whether you should enter the arena of student debt? Know the value of your degree. Value in this case is nothing more than the worth minus cost.
1. What is your degree worth?—What is the median wage of the profession this degree will qualify you for? What are the post-graduation placement rates? How safe is it from outsourcing and automation?
2. What is the cost?—How much will it take to get to get the skill set you want, including interest and all other associated costs? Can you cut costs by going to another school or living in a different situation? What are the opportunity costs?
After you take these two things into account, the choice becomes a simple cost benefit analysis. Either your goals make sense and you should proceed, or they don’t and it might be time to re-evaluate.
This simple choice can still be too complicated for some. Last weekend I was chatting with someone at my local hobby store about the vocational degree he was pursuing when a young woman joined our conversation. She made it known that she was also pursuing a vocational degree – in costume design.
A few simple questions made it clear she was absolutely oblivious to these sorts of factors: she was going to pay $80k for a degree that would lead to a job with a median wage of $12 per hour. It is worth nothing that is less than she is getting paid for her current job. Assuming optimal conditions, if she lands a good job in her field upon graduation, and pays 10% of her income each year to her loans, she can expect to pay off this life choice in a little over 30 years.
That’s a long time to spend paying off a dream.