1/24/2005

Is the Cost of Getting a Degree Killing You?

If you are like me, the cost of your college degree is probably mounting up. College loans and credit card debt are quickly making Americas young adults the most indebted generation ever. We have all heard our parents and grandparents say “get a good education and you will get a good job” Once you get that well paying career off the ground your problems are all over right? Wrong! Your problems are just starting. Payment of student loans starts, credit card interest haunts you daily, and now you need a car to get to work since you can’t walk to the school anymore. During the 1990s, college costs soared by an average of 38%. To make matters worse the costs of rent and housing prices have increased faster than inflation over the past decade. Does this mean we must enslave ourselves to massive amounts of debt, to get a beginning salary that barely pays all of the bills? The sad but all too real story for some students comes in the way of a trade off. Some students decide to quite while they are ahead by dropping out of school before they finish, getting an early start on the debt they have already amassed. Others choose not to attend a college or university altogether to avoid the pain and suffering. And then there is the die hard student who tries to work 60 hours a week, while going to school full time to avoid debt altogether, and in the process becomes a social recluse. Any way you look at the challenge of getting a good education, there are definite economic trade-offs that we must all consider. So what do you think? Should we amass debt to get a good education a hope that we can pay for it when we finally get a job? Or should we try another more effective alternative? Help me out here.

1 comment:

Dr. Tufte said...

-1 for a spelling mistake in Drake's post (waived).
-1 for a spelling mistake on Rico's post (waived).
Also, Stockton's comment has two paragraphs - remember that this is the internet, and it is difficult to indent paragraphs, so most people put blank lines between them.

The way to encompass all of those tradeoffs with economics/finance is through present value. What is the present value of the debt and future service charges that you incur, versus the present value of the boost in future income you can expect to receive from a college education.

The answer turns out to be that going to college is an OK investment, graduating from college is an excellent investment. After that, master's and doctoral degrees also tend to be good investments, but not as good as a B.A./B.S.

One thought concerning Lana's post is that her father may have optimally chosen which debts to pay off first. Student loans often have relatively low rates, and they have very poor enforcement of delinquent loans (unlike, say, auto loans). This means that student loans are probably the best ones to defer when you have other more pressing loan obligations.

And ... I hate to admit it but Rico is right. Students are often volunteering to take on new debts (by purchasing stuff). I'm guilty of that myself still, and I'm 15 years out of graduate school.