Money And Investing  -

Should I Get Into Debt For Education

27 03 06 19 14

-------- Consider Value and Alternatives

(Financial Baby Steps is hosting the Carnival of Personal Finance this week. They inspired this article with their discussions about students and money. It is being jointly published in Money and Investing and Find New Job).

Some people say “Education is Priceless”. Other more realistically minded people often say “Think education is expensive? Try ignorance.” This article is not to prove or disprove the value of education, but rather to help decide how deep into debt should a college-bound kid should get for the career they want.

In education, as with many things in life, you may get what you pay for. Also, as with many things in life, you must be sure that you are paying for what you really find important. Expensive colleges may be cost that much for numerous reasons including prestige, potential career networking, uniqueness of programs, admission requirements, state or college finances, and quality of education.

Consider Alternatives
Start by considering the alternative of getting into debt. I went to a public college that still costs around $5,000 a year (tuition and fees are around $1,500 a year). In today’s standards that is ultra cheap for a regionally accredited college considered “highly competitive”. I was lucky to score such a low price tag, but most people have economical education available for around $10,000 a year. Even in the most expensive states it will be less than $15,000/year for a state university. Had I chosen a different school I might have fared differently: hopefully better. A place like MIT or Georgia Tech might have jumpstarted my career: at a price tag differential of about $100,000 over the four year education: Money that neither me nor my parents had.

Usually There is Help
The government helps the needy. The college itself helps the smartest and brightest: an incentive to overachieve in high school for sure. Thousands of organizations give help based on diverse factors including merit, gender, race, and association affiliation. Never discount the fact that price tag is “full price”, and as with many things in life you don’t have and should not have to pay “full price”.

Still, $50,000 is a lot of money!
Even if you can slash the price differential by 50%, lets say down to $50,000 over four years to continue using our example, it is a lot of money! Federal Stafford loans currently charge 6.8%. Federal PLUS loans go all the way up to 8%. On a ten year repayment schedule that means around $600 a month for a long, long time.

It Could Be Crippling!
Had I had to pay $600/month upon graduation I would have had to share an apartment rather than renting one on my own. I would also have had to buy a used car rather than the new one I bought. Neither would have been terrible measures, but certainly will not have provided the perceived luxury I was hoping for upon graduation. I would have also had to delay my first home purchase, which will have impacted my current and future net worth dramatically – by hundreds of thousands of dollars. But then again, I could have ended with a higher starting salary coming out of a top-notch school. I would have needed a 20% to 25% increase over my starting salary to offset the crippling loan payment: difficult to achieve, but within reason.

Also consider that some benefits are not immediately seen. Knowledge or career networking done at a pricey college may not get reflected until years have gone by in your career.

Not Everything Is About Money
Education at a particular college may provide access to a unique program. It may bring intangible recognition from your peers and current/future employers. For some, it may even be a family tradition. Some people just feel they have to get the quality education no matter the cost.

My Personal Choice
I see several paths:

1. Over Achieve in High School Overachievement will most probably make colleges want you, rather than you want them. Top over achievers get school for free or at very reduced prices. That hard work in high school may be the best investment a student may have made in his/her life.
2. Have Rich Parents I know, we all dream about it. But if you are new parent, you can make sure that by the time your kid goes to college you are financially secure – even if not rich. Avoid debt, invest money, and live well below your means. You will be able to invest in the future generation, and having enough money may lessen the impact of such investment considerably.
3. Go For Value Using whichever method of estimation you trust, if you can determine that the salary you will obtain out of a top-notch education compensates the suffering you will have, go for it.
4. Be a Master Go to a competitive but moderately priced school for your bachelors degree and then go for a Master’s degree at a top-notch college. Overall cost may be less, and salary and career expectations may be considerably more.