Analyzing the Dynamics Behind the College and Student Loan Crisis

It’s always the same ingredients…

1) It’s assumed common knowledge that what you are buying is a ‘good investment’ no matter what the price. It’s doesn’t matter the price of the house, it’s a good investment.    It’s assumed a college degree is a good investment, forever, no matter what the cost.

2) Parents and other advisors have old-school wisdom from when values were still normal. It used to be tough to own a house and since it was more rare it usually paid off.  It used to be hard and relatively rare to get a college degree, and thus it usually paid off.  But they don’t see how things have changed, how schools have been using students’ drive to not disappoint their parents to raise tuition drastically. After all, if a price hike doesn’t dissuade people from going to college, that’s free money for the college.

3) There is just enough positive examples of success to allow people to generalize.  ‘Sam bought a house and made $100k his first year’.  Lesson – buying any house is worth it. “Kevin graduated from Harvard in engineering and he’s making $90k in salary at the age of 25′.  People see these and generalize – ‘any college degree must be worth it’. The failures are not seen or focused on. We hear that the average college grad makes a half-million dollars more in their lifetime than a non-college grad. But we forget that that includes the mega-billionaires that struck it rich, lifting that average up. We don’t see the masses of people that aren’t making anymore than they would have been otherwise, and are paying back debt on top of it.

4) Social prestige, instead of real value. They need to buy a house at any price so that they can look successful. Homeowning is a part of being labelled a success. Same with having a degree. If you didn’t get one,  you must be a failure. So, you’ve read thousands of textbooks at the library for free?  The sorority girl that cheated on all her ‘pay your fee, get your B’ tests got a degree and, in the eyes of the public, is more successful than you.

5) A shift of focus away from the investment value. An investment is simple — if it provides you more than you put into it, it’s an investment.  At first, that focus was on salary  – you will make more than you paid. But now, since that is much less the case outside of science, tech, engineering, or math fields, the focus is on non-monetary ‘value’.  To keep enrollment and tuition high, colleges are focusing on the value of learning for learning sake (not future job prospects), of the ‘college experience’, of the ‘cherished time you will never forget’, of ‘following your passion’.  Isn’t that worth it? This means you had better be satisfied knowing that you know a TON about philosophy (your passion) when you are working for 10 bucks an hour as a taxi driver, and that that satisfaction must be worth the $600 a month loan payment for pursuing it.  Couldn’t you get a far greater experience if you simply spent just HALF of a freshmen’s tuition and instead backpacked around Europe, maybe reading textbooks on the trains or in hostels when you were bored? Or is college (I mean, playing Halo or watching Netflix 6 hours a day) that important to you?

The education industry knows this and is using it against you.  The only thing that makes prices fall is when potential buyers walk away. If the buyers won’t walk away no matter what, prices will rise.

And because you are too afraid to NOT get a degree, because what will you parents say, what will people think of you, haven’t you heard that college debt is GOOD debt, college is an investment? Besides, your friends will all be going to college in the fall, and the parties are, ummm, uh-MAZING, and besides you don’t have to worry about the debt for four more years which is like, forever away, and plus you’re gonna walk out of school and companies are just going to be throwing money at you because you have a degree, because college is way harder than a job, that’s why companies like college students so much. So at that moment, ANY price for college seems like a good price.

Colleges know this. Why do you think they spend so much money on campus improvements — spas, pools, resort-like housing? Because they know that is the deal-clincher, that with everyone else pushing you to go, that’s the last thing you need to simply not pay attention to the cost.

Never forget that you are a customer, they need you. Yet, they have convinced us that we need to try REALLY hard to apply and cross our fingers that we get in. Then, we need to study so that hopefully we pass and graduate. That’s like a car salesman telling you that you need to try hard to convince him to sell you a car at full price. Then, after he finally decides you are ‘good enough’ to sell to, then he throws a congratulatory ‘graduation’ ceremony because you have been ‘selected’ as the purchaser. You earned this car (this car you are paying for).

What makes this saga so tragic is that the employment marketplace hasn’t batted an eye. The employment market must always clear… whereas a college  makes money by adding another student, an employer loses money by adding another employee. And that employer doesn’t care that you are passionate about english, or philosophy, or that you studied russian literature. They want to know how you are going to make them money, and why they should choose you over all the other college grads competing for that job. If you thought getting into school was hard, remember, you were trying to impress someone you were paying money TO.  Now you are trying to impress someone who is paying money to YOU. College was a game that you were rigged to win. Your career is a game that you can very, very easily lose, and hard work only buys you the chance to win.

Employers want the skills.  They don’t care how you get them. And if your college watered down your classes to the point that you really didn’t learn anything that will make your future employer money, then you are going to be hurting.   Employers are not fooled. They’ve seen lots of prepared college grads, and plenty of ones that couldn’t perform, either because they didn’t have the knowledge, or they’ve never had a day of ‘real work’ in their lives.  Employers themselves went to college, and they know they didn’t even have to show up to make a B. So you can bet that you degree really doesn’t impress them. Ask any college grad about what an employer today wants and count how many times you hear the word ‘experience’.

Here’s how the greatest tragedies of student loan debt play out:

Chris was considering going to college for math, but he decided that film is now his passion. Society has taught him its honorable to pursue your passion. Naturally, he assumes going to college to major in film is smart. “College is high caliber. There’s nowhere better to learn than from the expert professors at a college. I’m going to show up after graduation and wow my future employer.”  He spends just his last  year (after 3 years of basics that he learned in high school), learning about the elements of directing, of character selection, etc… It’s very interesting to him and he loves the classes. But alas, graduation comes too soon. He contemplates going to grad school for directing (his professors really encouraged him to, because he’s so talented), but he just feels that that would be too much debt.

Of course, if something is interesting or fun to you, it’s probably that way with lots of people.  People don’t hire people to do things that are fun, otherwise they’d just do it themselves. They hire people for things that are either hard, not fun, or require skills they don’t possess.

So Chris shows up ready-for-hire, with the theoretical knowledge to be a director, taught by professors that may or may not have been successful in the film industry (after all, if they were so successful, why are they now teaching?) But director is not a role that anyone wants to give up. But the director needs a good film crew.

Unfortunately, being a part of the film crew only pays 8 dollars an hour, because lots of people want to ‘get their foot in the door’ and the director has hiring options.  Chris knows that if he takes this position, he’s in a position to learn and move up. He’ll have experience. But there’s no way he’ll be able to survive and still pay back his $600 bucks a month in loans.

So he has to pass on the position. Ironically, the position doesn’t even require a degree. Yes, that means that someone without a film degree, who walked up at the age of 18 and volunteered to work for whatever just so he could learn, actually has a better chance than Chris now. He found the $8 an hour salary to be plenty, and now that he is 23 with 5 years of experience, he’s got value to other employers and so he’s now making $16 an hour so that he doesn’t change companies. His boss has actually let him practice directing some scenes just for practice, and he is considering 1-2 select college courses that focus on direction. Since he’s been in the industry, he knows exactly which courses he should focus on.  He never skips class and asks all the right, tough, questions, because he knows how things work in the real world.

What about Chris? Chris decides, ‘I just can’t get a good job. It must be that a bachelor’s degree just isnt’ enough. Everyone has a bachelor’s degree now… I need a MASTERS degree to be successful. THEN the employers will be impressed.’ So Chris goes back to college for grad school, after painstakingly writing his admission essays and taking the exams. He is admitted, and $150k later, he graduates. It’s the proudest day of his life… he’s earned a Master’s in the passion of his life, film.

But what jobs can he find, that now cover his $1500 a month in student loans? With zero experience, he struggles to find a job.  Fortunately, Chris discovers that, since the demand for college today is so high, there is a new college opening nearby. And they have a film department. Chris networks his way to an interview, and becomes a professor, allowing him to meet his monthly debt obligation by teaching other students about film.

At the end of the day, we have to look at college for what it is…. a business. One of that businesses interests is that professors have jobs. An English literature professor may know that there aren’t any English literature jobs out there (which is why he is lucky to have become a professor), but he isn’t going to persuade his students from pursuing the degree that he teaches.  He is going to tell them to ‘follow their passions, listen to their hearts’, and that it will all be ok. That student leaves class thinking, ‘wow, I’ve found my life passion’, decides to take a quick stop by the campus aquatic center to talk about the upcoming fall party, content with how her life is going to be perfect. Little does she know that the future her in four years would probably like to have a little chat with her.

What are some good takeaways? How does one succeed today?

1. Question if the degree is necessary for employment. Also consider that just because it is necessary, doesn’t mean it equals a job. 100% psychologists have a Bachelors in psychology, but that doesn’t mean a Bachelor’s in psychology means you will become a psychologist, no matter how interesting the subject is to you.

2. Recognize that the automatic ‘rejection’ line for any job is usually ‘you don’t have enough education’ or ‘you don’t have the right education’. So many job seekers are pursuaded to go back to school because they keep getting these rejections. What they don’t realize is that, even after they get that ‘right’ education, the only thing that has changed is that the HR person can’t reject them with the same line. They have essentially paid $50k so that the HR person will say ‘I’m sorry, we’re just looking for a person with a different industry experience’ or ‘we generally only hire people that are referred by an employee’.

3. Networking and experience get you jobs much quicker than having the right education. A good networker doesn’t need a degree, and will usually gain experience. A college grad that can’t network and doesn’t have a highly valued STEM degree is at a sharp disadvantage.

4.  Does the degree actually matter? You may not have a finance degree, but if you have spent a significant amount of time at the library reading about financial theory, you are going to impress whenever you meet a finance manager at a party. If you can blow him away with your insights and knowledge, he’s not going to dismiss you because you don’t have a degree. He might even be more impressed that you don’t have one.

 

The “Should I pay off my student debt” calculator

It’s the eternal problem for students with loans… “Should I pay it off ahead of time or not? How soon can I be out of debt? How much extra should I put against my student loans, and how much is that worth in saved interest?”

If you are asking yourself these types of questions, WORRY NO LONGER! Below is a calculator that will allow you to quickly analyze how soon you could be out of debt, how much interest will cost you, and even how much of an emergency fund you should keep while you do it. It also has some important analysis tools after it that will allow you to very easily weigh various pro’s and con’s regarding your debt.

Note: The calculator assumes two important things:
1. You will only make the regular payments on your debt until you have built up your desired emergency fund. Remember, having paid all your money towards your loan doesn’t help you if you lose your job and can’t afford to eat — they won’t give you your money back. If this isn’t you cup of tea, just enter the months safety net as zero.

2. Anything other than what you say you will spend for living expenses, your regular student loan payments, and the extra money you put against you loan, will be saved. If you want to save less, be sure to put in a larger amount for monthly living expenses.

At the end, you will see a variety of tables that will show you how various outputs change as you shift the inputs. Want to know how much sooner it will be paid off or how much interest it will cost you to live on $1600 dollars a month instead of $1400 dollars a month? You will find your answers here.
— These tables will also show you just how critical it is to have as LOW an interest rate as possible. If you have enough sense to be doing this sort of research about your loans, you probably already know that changing to private student loans can save you a bundle and allow you to pay it off sooner by reducing your interest rate. There are some minor drawbacks, but overall, that is usually wise strategy.

Without further ado, I give you….. Student Loan Calculator 3000! Just enter your information in the yellow boxes and it will automatically give you accurate results!