We Don’t Have a Student Loan Crisis

Everywhere I turn there is talk of the student loan crisis in America. All the news outlets talk about how millennials can’t get ahead because we’re collateral damage in this crisis.

Make no mistake, the astronomical cost of higher education is outrageous, as are the cost increases (that far outpace inflation btw) that are piled on year after year.

However, the ever-increasing student loan burden is simply a symptom of a more significant underlying issue.

We don’t have a student loan crisis. We have a financial literacy crisis coupled with bad advice based on information that is no longer true (if it ever was).

The financial literacy crisis

April is financial literacy month.

We often look at financial literacy from the perspective of how much an individual understands about the basics of personal finance, such as budgeting, saving, and investing.

But we also have to look at financial literacy from the perspective of how much an individual understands about how his or her decisions impact the overall financial situation.

The current student loan situation falls in the latter category.

The people making decisions about student loans typically have barely begun their adult lives and don’t have a basic understanding of personal finance skills, let alone an appreciation of the lasting financial effects of their student loan decisions on their lives.

This is a problem.

Further, often there isn’t anyone in the students’ lives who can help them understand. There either is no guidance at all, or the people guiding them also don’t appreciate the full impact student loans can have on students’ lives.

Bad advice: The college degree myth

Part of the problem is that we keep giving high school grads bad advice about college.

We tout a college degree as the key to success no matter the cost. Just get your degree and worry about the cost later.

As long as you go to college, everything will turn out fine, right?

Bull.

As many people in my generation are finding or have found, a degree is not a magic pill.

A marketable degree is far more likely to result in success than one that there is no market for. Even if you have a marketable degree and can land a job, though, that job may not pay a whole lot.

Further, when some people can’t land jobs in their fields, we tell them going back to school will solve their problems. They typically take on more student loans to do so.

Degrees are not the end-all-be-all answer that everyone makes them out to be.

While college degrees typically afford more job opportunities, they’re not so valuable that they’re worth whatever price the schools decide to charge.

Righting the course

Parents are often unable to save any significant amount for their children’s educations by the time they reach college age. As a result, many students will turn to student loans to pay for school.

In light of this, we need to guide college-bound students to make better decisions regarding student loans.

The two biggest factors that students have control over regarding their loans are their school choice and major choice.

School choice

The biggest factor in the cost of higher education is the choice of school.

Looking at my own situation, I could have gone to college for free if I had chosen a public state school. Instead I chose a private school.

Although I attended a public school for law school, I could have spent significantly less had I chosen a public school that was in-state.

When I look at the ranks of lawyers at my firm, we come from schools across the board—state schools, private schools, well-known, unknown. And you know what? We’re all in the same position professionally.

Some of us just paid way more than others to get here.

All this to say, the fancy name on a school generally doesn’t mean jack. It simply allows the school to charge a premium.

State schools tend to offer comparable educations at a fraction of the cost.

Short of schools being more reasonable in setting tuition rates, if we want to turn things around, let’s educate students on choosing a school to minimize costs as much as possible.

Major choice

School choice will play a role in the total cost of college, but major choice will play a role in the ability to make money after college. This, of course, bears on a student’s ability to pay back any money borrowed.

Let me preface this by saying I’m all for following your dreams. However…let’s be realistic.

Remember I told you I went to a private school for undergrad? I majored in sociology knowing that I intended to go on to law school.

Some people study similar subjects with no plan to go further. Armed with a degree, they believe they’re set.

What’s worse, some of them end up with six-figure student loan debt at the end of it all.

While there may be some jobs in sociology, history, philosophy, etc. that pay six figures, this isn’t the norm.

In business, one measure of the viability of a particular course of action is the return on investment or ROI. The ROI measures the benefit you receive from an investment versus how much it cost you.

Looking at the ROI for particular majors and career fields may help to decrease the loan burden students take on. Ideally, they would only pay an amount for a degree (and by extension, take on student loans) commensurate with the amount they could earn.

In other words, let’s teach students not to pay $100k for a degree if the potential income in that career field is $30k.

That’s a terrible return on investment, and we recognize it in every other aspect of life.

If someone offered us something worth $30k but tried to charge us $100k for it, we’d tell them to kick rocks. Yet we allow Prestigious University to get away with this same deal year after year.

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There’s a large number of people struggling under the weight of overwhelming student loan debt, and I don’t mean to minimize their experience.

I just can’t help but think about how little I knew about money when I was making decisions about my student loans and how little guidance I had. I believe my experience is the norm rather than the exception.

If we educate students on the financial impact student loans can have before they sign their first promissory note and help them make better decisions about how much to borrow, perhaps we can turn things around for the next generation.

What do you think about student loans? Would this proposal to fix things for the next generation work? Am I oversimplifying things?