Generally speaking, investing in yourself is a smart idea. More education usually leads to more opportunities, better jobs, and higher income. However, many students have no idea how to think about investment in financial terms.
For example, does it make sense to spend $100,000 and take on tens of thousands in loans in order to get a degree in social work, a profession in which jobs often pay very poorly? Students in all professions need to consider the concept of “return on investment” or ROI. In my opinion, I think it’s just plain foolish to take out heavy loans to get an undergraduate education.
The average student loan load in this country is about $5000 per year, and most undergraduates can expect to graduate with about $20,000 in loans. I think this seems like a decent investment for most students.
But I have one client with relatively meager resources who insists that if he gets into a very selective college. He does whatever it takes to pay for it. It’s a long story but despite this young man’s lack of money to pay for college. He will not be eligible for need-based aid. So in order to attend a $40k-per-year college, he’d have no alternative but to take out loans. Big ones.
(Never mind the fact that he might not GET the loans today because of the credit crunch…but that’s a digression).
If this young man put himself in hock to the tune of, say, $80,000 to pay for Princeton, would he get his return on investment? Well, it depends on what field he decides to go into. But somehow I don’t see him as an investment banker (and the timing would be bad for that profession, anyway), and I don’t see him becoming a management consultant. He’s more a “save the world” sort of person, who loves the arts and literature. I see him becoming a professor, perhaps. But with all the debt, how would he ever pay it all off on an assistant professor’s salary? And we’re not even talking about graduate school debt.
The Chicago Tribune has a great article today in its “Consumer Watch” section, which asks the question, “Is College Worth It?” Of course, the answer is yes. Except when it is no.
The article leads with a story of a young woman who took out $60,000 in loans to go to fashion school and learn about merchandising. She can’t get a job. She waits tables. Now waiting tables isn’t horrible–I did it for a year after college, and I scraped enough money together to make loan payments. But I moved on and my income went up quickly. This woman is drowning in debt, and has a good case of buyer’s remorse.
Face it folks, colleges are businesses and they are happy to take your money, and may even encourage you to take out more loans (heck, until the past few weeks, debt and leverage have been synonymous with the American Way). But you need to think carefully about this concept of ROI: Return on Investment.
And keep in mind that there are myriad ways to keep costs low and avoid taking out too many loans. Of course, you may not be able to have it all (i.e., your dream college with no debt burdens), but you can still make great investments in your own education, increase your earning power, and live a more fulfilling life–without mortgaging your future.
Mark Montgomery
College Counselor
