I learned recently that most young Americans today will be in debt for some time because today’s economy simply does not allow otherwise – even Suze Orman has acknowledged this in her writing. Think about it; college education is required today (although it costs more than most people can pay) and homes are not cheap enough to pay cash for either. If you have bad luck with cars, like me – you’re not likely to drive a car without a monthly payment. There are many people out there espousing a no-debt ideology, but it appears that statistically speaking, that is impossible for my peers in America today. Who knew?
So, with the above being noted, how does one go about the decision to borrow for school? Here are some ideas from my past and present:
- You have to crunch some numbers (or have someone help you).
- You have to analyze why you want the education.
- Consider alternative scenarios for an education relevant to your career and your life.
- You cannot be the only reasonable person that believes in you.
- Be adaptive, and change your plans as often as needed.
- Be prepared to monetize your education in any and all ways possible after you graduate.
Ready, set, GO!
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You have to crunch some numbers (or have someone help you). This is hugely important.
Truth-in-lending laws do not apply to student loans! What that means for you is that [among other things] lenders are not required to tell you what your monthly payment will be when you graduate. Some private lenders do this out of habit, but lenders of federal loans pretty much never do. Nelnet customer service folks couldn’t tell me when I was in school, but I calculated it by myself before committing to complete the expensive academic program I was enrolled in.
Universities are not required to nor can they guarantee you a certain type of job upon graduation. What this means for you is that your school might be selling a degree that makes little to no money compared to the debt you incur. The most unfortunate example today is the Law Degree, which goes for about $100k for many, although the legal profession is saturated, relatively speaking. You should research the salaries in your field. You should research the projected growth in your field well past the years you will be in college. Both are available from the U.S. Bureau of Labor Statistics Occupational Outlook Handbook. You should inquire from your professors about what kinds of jobs you might get, and what kinds of salaries you might get. If they can’t tell you, rethink your need for that degree. Finally, you should be conservative because (as I learned in 2009) all of these projections and expectations won’t matter if you live on the cusp of a huge economic Black Swan event.
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You have to analyze why you want the education; only borrow for an education you have to have.
All of the financial experts out there agree that it is a bad idea to get into debt to impress people. Part of my reason for going to UT (as opposed to other top 10 institutions) is that it is consistently ranked (over the last 20 years) #1 or #2 for its accounting programs…this excited my father in a way I hadn’t seen before. In retrospect, I should not have let my father’s reaction factor into my decision. Still, I am fortunate that other factors weighed more at the time.
It is also a bad idea to major in something just because you like it. My friend Johnnie gave me the most profound educational advice ever: “If I want to learn something,” he said, “I don’t pay them $300 a credit hour to do it. I just go to the library and learn for free. School is ONLY for the knowledge I have to acquire in an academic environment. Everything else, I learn on my own.”
If you want to get another degree, chances are that you don’t need it. If you do, go for it – but don’t be afraid to ask the question. I got a Masters Degree in Accounting because I needed more college hours to qualify for the CPA exam, and getting my degree from a high ranked institution would place me in the recruiting pipeline of top firms in top cities. As the economy has worsened, the latter has only been truer. I read in 2009 that something like 90% of Accounting firm staff were former interns (everyone knows that interns come almost exclusively from said recruiting “pipeline”).
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Consider alternative scenarios for an education relevant to your career and your life.
If you have to have the degree to get a job or lifestyle that you want, that’s fine. Perhaps you don’t need it from a particular school? Perhaps you can get a different school? In my case, I wanted to be in the recruiting pipeline for a top Accounting firm in a top market. The only way I knew to achieve this was to go to a top school with a national reputation, however I now know of another. For my purpose, if I attended any school in a top marketplace, I would have a decent shot at a job in that city. If I had attended the University of Houston (cheaper school), I would have had a chance to recruit with Houston firms (top market, big city) while also being in a better part-time job market than Austin. The better part-time job-market would reduce my borrowing for living expenses.
I also could have moved to Texas and gained residency, to cut my UT-Austin tuition in half. This would have cost me one year, but might have been worth the delay. Truth be told, one of my schoolmates at UT was from another state and did just this. For my part, I decided against that method because in my undergraduate degree, I had covered everything tested in the CPA exam, even though I couldn’t sit until I had completed 150 college hours. I did not want my knowledge to decay too far because the exam is quite difficult (if you know the CPA exam, then you understand this).
At the end of the day, there is no black and white; just a lot of grey that you should be comfortable with. Again, do not shy away from looking at the alternatives.
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You cannot be the only reasonable person that believes in you.
This is a simple rule, but I have to expand it to include your closest family members. The closer people are to you, the more biased they are about you (in a good way). Sometimes they can wish you so much good, that they fail to see that the world will not deliver. On the other hand, people that are too far removed from you may not know enough to understand your value as a candidate for employment in your field. I recommend discussing the above issues casually with people from both groups (and a few in-betweens) before making your decision. I also recommend talking with people that are between 20 and 40 or who interact often with people in that age group, because student loan debt is unique to that age group.
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Be adaptive, and change your plans as often as needed.
Be prepared to quit an academic program, if it no longer makes sense. In my case, I considered quitting from UT-Austin during my first semester because I had the connections to get a job in Kansas City with any of several top firms. The last bit of analysis led me to determine how “broke” I would be in my first job, and after I had measured it, I decided to go for it anyway. It generally pains me when I see people sticking out a long process just because they started; when you know better, do better, even if it means quitting.
Sometimes, the adjustment will not be drastic, but can have drastic effects. I initially wanted to work in New York, Los Angeles, London, or Paris, but had to scale down due to my student loans and the fact that the cost of living in those cities was far too high. I decided to stay in Texas, where my money would stretch farther. One of my schoolmates told me as he planned to start work in New York, that his father would have to continue giving him an allowance because the cost of living was so high. I didn’t think there was necessarily something wrong with that, but I knew that my parents could not do the same, and acted accordingly.
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Be prepared to monetize your education in any and all ways possible after you graduate.
I have noticed that when we start school, we seek to work in a certain field we like, but by the time we have families and are older any job with the right salary will do. I call this the transformation from idealism to pragmatism. I would encourage anyone getting into debt for school to keep an open mind about what might be the most economically viable path for him/her in the future.
A big thanks to those that made it this far. They say that your attention spans are too short for long articles, but clearly, you’re smarter than that. 
If you have applied any of these steps in your educational career, please tell us how it worked for you! If you disagree, please enlighten us. What did I miss?
{ 9 comments… read them below or add one }
I wish I had known this 8 years ago when I began my collegiate career, It would have been very helpful. I especially love the idealism to pragmatism portion.
Very excellent and thorough article.
The thing about this is that, at 18 most people are not thinking about this nor have the mental ability to give it a detailed thought and analysis. This is where parents should come in, they should guide their children through the college process starting from when they enter high school. It will make things much easier for both sides.
Excellent point CollegeStudent. Studies have shown that a brain isn’t fully developed before 18 and chances are that at 18 it’s not “all the way there”. I totally agree that parents should be involved and I hope that their input is based on facts…not fears or wishful thinking. Perhaps this is a role for high school teachers and counselors to play….
I enjoyed this article. You force me to continue to analyze my financial circumstances during every moment of my academic career. I do not have much to say about my method or strategy when making those BIG decisions. Mostly I operate off of faith….its seems when I get too logical about solving problems I always make errors, but when I operate off of my faith I seem to never be disappointed with the results, good or bad. When I get deep into thought about what to borrow, who believes in me, or will I secure a job after graduation, I get discouraged because it is so much to think about and so much that could go wrong. I can not possibly think of a plan to save myself and guarantee success. In this world I believe that we as people profit off the uncertainty of life itself. This is how insurance companies make money. We are so scared to rely on faith that we spend all this money getting insurance in case “something” happens. In the past I have tried to make plans for many occasions, goals, or events and even if the plan was concrete things happen. I rather trust that God will provide, protect, and guide my steps, finances and actions. Not a very logical decision most would argue. (Just my thoughts) Great article Albert!
Thanks for your deep and profound comment Olajuwon. I appreciate your thoughts greatly. I would only add two things that might help you:
(1) You should not go it alone. From your post, it seems like you are doing this all alone, and you do not have to. There are many people that can help – perhaps I should write about that someday.
(2) Faith and logic do not have to nullify each other. Rather, they can complement each other. What do I mean? After reading my opinions above, if you learned something, then your faith is less “blind” than before. Understanding what your “believe” will conquer is important because then you will also understand that it might not happen overnight. I too had faith, and I still do…but everyday I come to understand more fully what my faith is meant to conquer. It humbles me, and makes me focus more on the (you guessed it) long-term. I believe that God doesn’t think in plans; he thinks in strategies…he knows that there are many ways to get to a given destination (just my thoughts).
It took me awhile to comment back on this article but it was a very intriguing one that I had to go over in my head. Before going to UMKC to major in communications I had to crunch numbers to see if it was the right move for me. At Longview I had a scholarship where I only had to pay for books and now at UMKC I have to take out student loans and get use to the fact that I will have to pay this money back. So what I did was I used two separate savings accounts one for my savings and one to put the left over money from my student loan. So when the time comes to start paying that money back I will have the sum that is left over to help pay.
Seems like you are thinking things through Michael. Definitely keep that money safe – but please consider paying it towards your “unsubsidized” loans which are accruing interest as we speak. Just a thought; you’re doing well either way as long as you don’t spend that money frivolously.
The bottom line here is to always put your thinking hat on before you start diving into debt for the sake of an education – I love the premise!!
Now I completely disagree with the so-calledly most profound education advice you’ve ever heard: “If I want to learn something,” he said, “I don’t pay them $300 a credit hour to do it. I just go to the library and learn for free. School is ONLY for the knowledge I have to acquire in an academic environment. Everything else, I learn on my own.”
You know that school is much more about learning what you went there for. If you are sharp enough and truly a knowledge seeker, you will come out of school with much more than you went there for. Even I who was a communter student and didn’t engage in much outside classroom activities at my University came out of school with a lot more than just the degree and the knowledge directly associated with it. Sure somethings can be learned from just grabbing a book but let’s not overblow the usefulness of just reading a book as compared to actually attending classes.
I think what would be very relevant here is the quote from #3 above: “At the end of the day, there is no black and white; just a lot of grey that you should be comfortable with. Again, do not shy away from looking at the alternatives.”
Definitely do not shy away from alternatives. So do you really need a $300 a credit hour for that course or can a $70 a credit hour replacement for the exact same course do from a Community College if you can get the same class from such a college? That is the real question.
Thanks for your comment Richard. I think I see the advice as profound because I am largely self-taught. It’s not an excuse to not go to school, rather, it reminds me that I can learn things outside school, which I have. I didn’t double-major; I just learned enough there to “go it alone”.
The “alternatives” vary, but they are there. We have to keep an open mind.
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