Welcome to the 5th Smart Money Debate at ReadyForZero! To see the other side of this debate, read Dominique’s post: Why You Should Take Out Student Loans for College. And then let us know which argument was more convincing!
This post is written by Kelli Space, a student loan advocate and personal finance enthusiast who writes about her own student loan experience at twohundredthou.com. She is also the co-founder of Zero Bound, an online platform that aims to help students and alumni pay off their student loans through sponsored volunteering. She has a BA in Sociology from Northeastern University and believes more (affordable) education is in her near future.
Last year, student loan debt surpassed credit card debt.1 This year, student loan debt topped $1 trillion dollars.2 While this says a lot about the emphasis Americans are placing on education, the high cost of college suggests it may be time to question the return on investment of your college degree.
Full disclosure: I believe in education. The power of being informed runs deep and has a profound impact on society through scientific advancements, international discussions, cultural understanding, and even in ways one can’t anticipate. Learning should never cease.
However, is “attending college” the only way to continue to learn? It certainly looks great on a resume, but is it the only way to gauge one’s ability to complete tasks or capacity to answer a question? I don’t have the answer to that, but what I can address is the amount of money students are borrowing to obtain their degrees. College costs money. And, when colleges are being run like businesses, the students are the consumers. They have the freedom of choice.
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To that end, here are my reasons why borrowing money for school might not be the best idea:
No Proof of Ability to Pay the Money Back
Private loans are lent by banks, and banks have one job – to make money. When they lend money, it is because they will make even more money back in interest. Further, student loan debt cannot be discharged in bankruptcy except in cases of extreme hardship and, even if a borrower defaults, the government guarantees the loans and will ensure the bank is paid back.
This means banks have no reason to qualify their borrowers based on anything other than their need.
As a borrower, however, you have every reason to consider how much you’re borrowing and how much money you will probably earn. Do you think you’ll be able to pay your loans off in a reasonable amount of time without serious sacrifice on your part? Even so, while the government might guarantee these private loans, nothing guarantees that you will graduate with a job.
“Thank God I Have Student Loan Debt!”
…said no one.
College has indeed made it possible to achieve personal and social greatness. Some people are indirectly grateful for their debt because it took them places, and made the impossible possible – but there is a tipping point that has been disregarded and that’s what we need to evaluate.
Account for Change
Borrowing money is a serious, unwavering commitment. What if something changes? Similar to not being able to guarantee that you’ll have a job – what if you want to change your major to something less lucrative (but more fulfilling)? What if you have to take a leave of absence from school? These “what-ifs”, and more, are absolutely something to consider.
Many, many students are paying back their loans for 20, 25, or 30 years into the future. Heck, as of July 2012, nearly 16% of people over the age of 50 are carrying student loan debt3, and they went to school when it was cheap. To be fair, many of them might be carrying debt on behalf of their children as they could have cosigned the loans. But, 16% of $1 trillion is $160 billion. Actually, this leads to another issue: putting your parents in a weird, debt-owing spot when they have their own retirement to worry about!
Again, education is important. And largely it does require sacrifice from many students and families as the cost is quickly rising ($50K a year!?) Some of these sacrifices though, when combined, could put you ahead of the game.
For instance, working throughout high school, and perhaps for a year between high school and college, may help you save a good chunk of your future tuition. Maybe that year off can also help you gain some perspective in terms of your future – career, location, et al. Imagine starting college armed with $10K? You’re welcome, Mom & Dad. Volunteering and/or interning in addition to your job may aid in giving you valuable insight to what your interests might be, and what you’d like your future to look like. At least you’ll know what you are working toward from that point!
“Cheap” (pshhhh) college for a year or two can help to keep you on track while you work, save, and/or volunteer. Taking a few mandatory courses at community college for a fraction of the cost than that of a 4-year school will also wind up saving you future money, if you do end up having to borrow for school.
I borrowed quite a lot of money for my Bachelor’s degree, and know how it feels to be in life-halting debt, so I may sound a bit biased. On the contrary I do think borrowing for college is necessary a lot of the time considering the high cost of these institutions – perhaps not $200K worth, but the average debt load is just about 10% of that, at $25K. This is still a lot of money, but can be quite manageable depending on your salary. If you work at a not-for-profit or in certain urban areas, you may also be able to have your federal loans forgiven after a certain period of time, and bear in mind that federal loans are far more flexible than private loans.
Never stop learning. The internet has been a great tool for exactly that – and libraries, museums, and meeting groups exist for the same purpose. Exploring your interests and forming educated opinions are part of what has propelled our society into advancement. We’re counting on our future generations to worry less about debt and more about making this world a much better place.
To see the other side of this debate, read Dominique’s post: Why You Should Take Out Student Loans for College.
Image by Shane Global