Financing Higher Education: You’d Better Think Twice (Or Pay the Price)

Over the past 35 years, the cost of tuition at 4-year colleges has increased 8-times faster than wages, and the number of higher-education institutions has nearly doubled.  Many economists explain that this is an unintended and undesirable consequence of federally-backed student loan legislation.

I recommend further reading on this topic in the (short but informative) article that can be found here 

However, what I really want to address today is an issue that many families face every year.  After graduating high school, most students (and their parents) have a knee-jerk reaction of shipping their kids off to college, without giving it much thought or analysis.  For most, college is viewed as the only option, and they tend to ignore the alternatives, while minimizing the life-long consequences of financing higher education.  Since most families cannot afford to pay full-freight for college tuition, most turn to federal financial aid.  Despite its name, the only thing the federal government will be aiding is your financial ruin, if you’re not careful.

So before you jump on the bandwagon (and sign your life away to student loans), here are few morsels of food for thought.  Ask yourself the following questions, and if you’re a parent, you should include your child in the conversation (it will be one of many wise tidbits you’ll pass on).

Is college the right choice for you (your child)? 

What alternatives should be explored before making the decision to go to college? 

What kind of job/salary can be expected in the future? 

What is the plan for repaying student loans (what will repayment look like)?

What are some other ways of achieving higher education without taking on massive debt? 

Most people assume that college is the right choice, and a necessity, for everyone.  Surely college is the only way to be successful, right? You have a high school diploma, and you’ve been accepted to a college, what more is there to think about, right?  WRONG. 

If you were a mediocre student in high school, you probably should not expect much to change at the college level, when the course load will only get more difficult and the expectations set even higher.  If you’re spending tens of thousands of dollars for an education, it should be an endeavor that will produce a benefit commensurate with the cost.  In other words, you may graduate college and receive a degree, but if you “skated by” for 4 years and didn’t take your classes (and other opportunities) seriously, you’ll be very ill-prepared for the real world and job market, nevertheless. Only then, you’ll also be saddled with massive debt.  So first and foremost, be honest with yourself about who you are, what you’re capable of, what you’re willing to sacrifice, and where you want to end up.

Many people assume that unemployment upon recent college grads is a result of a poor economy.  But in my experience, it’s a lack of relevant skills and experience necessary to command a competitive salary.  Yes, you earned a degree.  Congratulations, so did 2 million other people, just like you.  What else do you bring to the table?  If all you have is a degree, but nothing more, employers will right through you. 

Humanitarian and liberal arts degrees are particularly useless (in my humble opinion) because they don’t bestow any particular expertise or provide a foundation upon which careers tend to be built.  Rather, it’s more of an excuse to enjoy the “college experience” while postponing the “real world” a few more years.  But there are much cheaper and more useful ways of delaying your entry into the workforce, if you must.

So ask yourself (and your child), “what kind of career or industry is s/he exploring? And, is a college degree necessary (or even the best option)?”

If you envision becoming a doctor or a lawyer, then college is typically a prerequisite.  However, if you’re planning to go in hospitality, retail, or a creative field (such as theater, production, etc.), then perhaps college is overkill and it’s worthwhile to at least explore the alternatives.

For example, consider on-the-job training, like internships and apprenticeships, certifications and credentials offered by trade schools, and any other path will best prepare you to enter the particular field or industry in which you are interested.  When books smarts are unnecessary, you’ll want to focus on education that will help you master relevant skills and gain experience that will impress potential employers, leading to success.

Perhaps you’d like to run a restaurant one day. Great!  Consider culinary school, or get your feet wet with a few ServSafe certification courses.  Here’s a novel idea, get a job at a restaurant and learn how to work the line, operate a commercial dishwasher, tend the bar, rotate stock and calculate profit margins!  Seriously, there’s not much to be gained from reading a book about running a restaurant, if you’ve never actually worked in one.  PoliSci, american literature and calculus might sound impressive, but none of that will prepare you for the challenges of the food service industry.  

Take it from me, some of the best employees I’ve ever had did not have college degrees.  The good ones often paid their dues and learned through hard work and experience.  So the takeaway here is, there are myriad of alternative paths to success and achievement.  But you’ll first need to do the work, and learn about your intended industry.

Another commonly overlooked option is the gap year.  Some students are forced into a gap year because they haven’t been accepted to the school of their choice, or loans/funds are not available for one reason or another.  A dream deferred can actually be a blessing in disguise.  But beware.  If you are going to take a year (or two) before continuing your education, you’ll need to do more than sleep in and play video games all day.  And while any job can be a good job, working as a cashier at Walmart is not going to look great on your resume when you’re applying for a job in the tech field.

You’ll want to look for a job (or an internship/apprenticeship) in (or related to) your intended field.  Even if you have to volunteer part-time, this will look great on your resume (or a later college application) and will provide invaluable experience.  If you’re lucky, you’ll even make a few buck in the process.

More importantly, you might learn that what you thought was your dream, is actually not what you want to do at all!  So many students begin their college course of study with an undeclared major.  Why spend the big bucks on a degree when you don’t even know what you want?  You wouldn’t pay for dinner before you saw the menu, would you? So take an investigative approach before you make such a big investment of time and money.  And, if you continue on to college, you’ll be better prepared and real-world educated!

Anther option is to apply for part-time programs of study.  Instead of loading up with 15 or 18 credits, consider 9 or 12, and work part-time.  You’ll be able to borrow less, if you have the means to pay for some of your tuition out-of-pocket.  If you live like a boss when you’re a student, you’ll live like a student when you’re the boss!

Now, I know a lot of people would scoff at me for even suggesting these next two ideas, but also consider a county college or trade school.  First, county colleges offer the same “core” classes that are offered at 4-year universities, but for a fraction of the price.  Second, most will guarantee that your credits will transfer to a 4-year college, which they do in order to stay competitive. And, after completing 2 years of study and earning your associate’s degree, you may find that you have all you need to venture out into the world and pursue your career goals and passions.

Similarly, trade schools can introduce you to a wide range of fields and occupations. Trade jobs are some of the highest in-demand jobs in the market today.  With the baby-boomers retiring en masse, there are tons of openings for skilled laborers, such as welders, electricians and engineers of all kinds.  When exploring the options, consider a trade, if it might interest you.  Many of the programs can be completed in less than 2 years, cost a fraction of the price compared to a university, and starting salaries in many trades are significantly higher because skilled laborers are in high demand.

Attending college is about planning for the future.  Depending on the occupation you intend to pursue, you should be aware of the types of positions that will be available to you, and the starting salaries in those positions.  For example, if you plan to pursue a teaching career, you might expect your salary to start at somewhere between $25,000-$45,000/year, depending on the district.  Also take into account mandatory contributions for pension and health insurance, and you will quickly realize that you are not left with much in your pocket at the end of the day.  Now assume that you financed a bachelor’s and a master’s degree, and you’re carrying $100,000 in student loan debt, requiring a monthly payment of $800 per month, for 20 years.  A payment this high might be nearly half or more of your take-home pay.

What it comes down to, then, is that it’s necessary to consider how much debt you are willing to take on, understanding what it will take to pay off that debt, and know whether your anticipated salary will enable you to both make reasonable payments and support your lifestyle and household. If you’ll be unable to make your monthly payments, you’ll end up in default, which is no picnic, believe me.

For more info on student loan default, read another of my recent blog posts:

Even if you have a plan for repaying student loans, you should also be prepared with a contingency plan.  As discussed above, you should have an understanding of the economics of repaying your student loans long before you accept disbursements from the lender.  The job market will not magically open doors for you because you prayed real hard.   But what if, despite all of your planning, things don’t quite work out the way you expected? What if you don’t graduate, or you become severely ill or disabled?  You should know what programs (both government and private) are available to assist you with payments or provide debt forgiveness.  You should also be prepared to take a job that, although not your passion, will enable you to utilize the skills and education you have, within your limitations, as the circumstances dictate.  Finally, you must have savings to fall back on, in the worst case scenario (which is another reason how a gap year can be useful).

At the end of the day, you owe it to yourself (or your children) to do your homework and make an educated decision, based in reality, and not emotion or nostalgia.  You wouldn’t invest $250,000 into a house, for example, without a home inspection; You wouldn’t invest $20,000 in a car without “kicking the tires”; and you wouldn’t buy stock in a company that reports weak financials.  Along the same lines, you wouldn’t want to invest $60,000 into an education that you won’t use, won’t benefit from, or that you won’t be able to afford!  (By the way, $60,000 is what it currently costs for 4 years at Rutgers University (undergrad) if you do not live on campus).




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