How can a high school student value a possible degree?

Question

From another question I asked, an answer said:

If a person borrowed heavily to obtain an education where they make anything less than 75K per year then it was probably foolish. There are many jobs that earn that and more that do not require a college education. A person would be far better off working while in school instead of borrowing for a relatively low income.

Some of the comments to this question had opinions either for or against this position:

The idea that borrowing "heavily to obtain an education where they make anything less than 75K per year is foolish" is just plain wrong. Maybe if you live in California or one of the major East coast cities then this applies, but not if you live somewhere with much lower cost of living. Not to mention the value of a good education beyond just securing a job.

and

It doesn't matter how high the cost of living is in the place you're going to work if your job isn't even able to pay your student loans. Getting a loan now to pick a very badly-paid job in the future isn't a wise move. A former GF is still paying her student loans five years after finishing college with monthly payments of $900, and she still has five more years to go. Her monthly salary is around $700. She has to consistently borrow money from everyone around her to just pay off her loans. The worst part? That's a good salary for her field.

In high school they tell us that college is valuable even if we don't get a high income ("it's about signaling"). A few of these replies seem to imply the opposite and I wish I had heard some of these other views before I began college (are current high school students hearing this?). These replies dumbfounded me a bit, as I've always heard that student loans were justifiable debt, yet a few of these replies state otherwise.

Since student loans may be a part of higher education and these affect personal finance situations, what should students consider about taking on student loan debt before getting a degree, such as, is Pete correct that 75K income for a potential degree (career path) is not enough to justify student loan debt?

Answer 1

college is valuable even if we don't get a high income

Absolutely! Any education is valuable in some way. Not all are valuable economically, though. A degree in sociology that enables you to work in social services where you can impact peoples' lives for the better is invaluable, though it may not pay enough to pay back tens of thousands of dollars of student loans.

I've always heard that student loans were justifiable debt

Not always. Borrowing $200K to get a Literal Arts degree (meaning a general degree with no specific specialization) from a private school is probably a bad idea. Borrowing $10K to finish your degree in Accounting is easier to justify financially, since it should be paid off within a year of getting a job.

The problem with a student loan is that it should be used to earn a degree where you can get a job that pays back the loan quickly. Once you have a student loan, there's no collateral to "give back" to satisfy the loan, unlike a mortgage or a car loan, and they cannot be discharged in bankruptcy. The only way out is to earn money and pay it back.

Yes, there are "loan forgiveness" programs out there that pay back your student loans if you work in an under-served field or region, but they usually require 5 to 10 years of work before the loan is paid off. By then, the interest you've paid usually outweighs the amount that is forgiven, and you'd have been better off (financially) getting a job that pays more and paying back the loan yourself, then working in an under-served area if you choose to.

I value a college education very highly, but that doesn't mean that borrowing as much as you can to get a degree from a prestigious school is always a good investment.

I personally want my children to avoid student debt like the plague for those reasons. As teenagers, I have already told them that I will only support them if they go to a school that we can afford together (which might mean they get a job to support themselves), pursue a degree that justifies the cost, and don't take any student debt. That may mean going to an in-state public university, but I have personally experienced the pain of paying back student loan debt over several years, and don't want my children to go through that if at all possible.

is Pete correct that 75K income for a potential degree (career path) is not enough to justify student loan debt?

The number is fairly arbitrary so it depends on what your cost of living is. Making $75K in, say, Alabama, is much different than making $75K in New York City. It's easier to live on much less than $75K with a lower cost-of-living and use the rest to pay off the student loans as quickly as possible.

what should students consider about taking on student loan debt before getting a degree

The main financial consideration is: how much do I expect to earn with this degree versus without it? That requires four guesses, though: What kind of job can I get now, how much does it pay, what kind of job can I get with the degree, and how much does it pay. Take that difference and divide it into the amount you'll need to borrow, and that tells you at least how long it will take to pay off the loan (in reality the interest will make it a longer period). Since that analysis has to be done before beginning college, that's a lot of unknowns to gamble a large student debt burden on. I changed degrees three times in college (taking loans along the way), and paid for it later with a larger debt burden than I would have liked.

Plus, that assumes that you don't spend any more of that extra money. It's very tempting to desire a nicer house, nicer cars, etc. and put the student loans off to the side, which increases the payback period even more.

All that to say that there are way too many unknowns to know for certain whether a student loan can be completely justified. It's better to avoid them as much as possible.

Answer 2

Great question. The first thing one needs to realize is that college education and high student loans are independent of one another. One can obtain a degree with little or no debt (and no help from relatives). Also one does not need to obtain a degree to achieve a high income. Unfortunately, the financial aid offices of most college encourage indebtedness, which is horrible for young and impressionable minds.

There are numerous web sites that can outline careers and their qualifications. Things will change but generally speaking engineers and health care related fields start out with good salaries and have good upward mobility.

But lets say your interest is in Russian Literature, and you would really like to take classes in that. Obtaining a degree in such will not really improve your earning ability unless one obtains a PhD. So why not start a career in your chosen field (that does not require a degree) and take classes in this desirable area of study? You can cash flow the cost and there is really no need to obtain such an esoteric degree so you can avoid matriculates in which you have no interest.

Another path is if a person desires to own and run a HVAC company. Should they take business classes? Yes, for sure. Do they need to take biology and philosophy in order to obtain a Business Administration degree? No, those things are probably a waste of time. They would be far better off working, learning the technical part of the job, building contacts that will be valuable later, and taking some business classes on the side.

Income earning capacity, no matter what the degree, will almost always come down to work ethic, time management, and working with others. Why not make work part of your college education? Sure go to classes, but there is nothing wrong with working too.

For students without parental help it is best to stick to only state schools and to start off at a community college. Apply for scholarships and work. If you have to take loans, take the minimum and only for less than half of tuition and books. Any more than that and you have to reevaluate your goals. I live in a college town and see many college students driving really nice cars that were bought courtesy of student loans. That is foolish no matter what the income potential.

Answer 3

"It depends" would be an understatement, because "It really, really depends." We all know people that never went to college that are very financially successful and we also all know people that went to college (and graduated) that aren't financially successful. Some college majors are inherently worth more than others, and some industries put more value on what school your degree is from (for example Business and Law).

I personally had over $80K in debt when I graduated and I consider my education to be the best investment I ever made. On the flip side I know quite a few people that had much less debt than I did and regret going at all, though most of them do value the "life experience" even though they don't feel it was worth the financial investment. Despite the fact that it worked out well for me, there are definitely things I could have done differently, for example:

1. I went to an expensive private school. I could have gone to a highly rated community college nearby for two years and then transferred the credits to the 4 year school. I likely would have still finished in 4 years but could have knocked $30K off my debt that way.
2. I could have worked harder in school. I know many people that regret not working hard enough in school, but I don't know anyone that regrets working too hard. Had I had a stronger work ethic perhaps I could have completed my degrees in less time by taking on extra courses.
3. Or, instead of extra courses I could have spent that time working. I had a few part time jobs but had I picked up a regular job I could have significantly reduced my debt once I graduated. I didn't feel like I had a lot of free time while I was in school, but looking back and comparing it to now having a family and working full time, I realize I had a lot of free time in college that I didn't take advantage of.

Answer 4

I think there are a number of good answers to this already, and they make some good points. But I think you are also asking a question that does not have a single answer and cannot be directly answered, and so you will at best get guidance to finding your own answer. To summarize some existing points and add to them, consider the following:

How are you choosing your degree?

I had an acquaintance who graduated with a BS from a 4 year college in something like Greek History. I met him because he worked for minimum wage in a business my parents had recently purchased. Another friend graduated from a 4 year college with a degree in mechanical engineering, and at that same time was working for Bayer for somewhere around $60k per year (in an area with a very low cost of living).

Whether you're choosing your degree based on high paying career prospects or just what interests you plays a large role in a cost benefit analysis. Unless you are independently wealthy, I recommend you always choose a career first, and let your choice of degree follow from that.

How much do you really need to spend?

I have two acquaintances who worked in college financial aid offices. They were specifically trained not to help students determine how much they need, but to help them determine how much they can get. In many cases a student could survive on a $100k loan, but they qualified for $150k. The FA office would encourage them to take the $150k, and then the students, having no experience in personal finances, would use the extra money as disposable income during their college life. In essence, this increased their cost of college by 50%.

Similarly, many students move away from home, as much as doubling their financial outlay for the degree. If you have the option of commuting from your parents' house, consider it and how it affects you financially.

Similarly, community colleges offer a great education in many areas for as much as 90% less than universities, and an Associates Degree will transfer to most universities. When you finish your BA no one will know or care that you spent your first two years at a CC; just that you achieved your BA from the university. Consider this as well.

So determining how much you actually need and financing that, as opposed to taking all that is recommended or offered, plays a large role in a cost benefit analysis.

Is financing really your only income source

Many students are surprised by just how much money is available via scholarships. Many are for academic or athletic achievement, but there are also many that are not. Consider which you may qualify for and which you may qualify for if you work towards that goal. If scholarships reduce your degree cost by 50%, that must be taken into your account in your cost benefit analysis.

Similarly, many students consider working and college to be mutually exclusive. For many, they need not be. All degrees differ in the study time required, as do all students. But many students can easily work a part time job during school. Assuming a pay rate of $10 / hour, and a a work schedule of 15 hours per week during school semesters (9 months of the year) and 40 hours per week during breaks, the student will have a annual gross income of $10,200, or $40,800 over the course of the four year degree. In other words, attending college does not always mean you need to sacrifice earning potential as an opportunity cost. Consider this in your cost benefit analysis.

Some further calculations and statistics

I think you may find some of the calculations and statistics I posted in my question at https://parenting.stackexchange.com/questions/28167/should-i-financially-assist-my-child-in-paying-for-college to be very useful.

What is value?

As has been mentioned, a degree, especially one from a university that provides a breadth of knowledge, is invaluable. Having the capacity to understand the world around you, understand the foundations of business and politics, and having a springboard for further study, can change your life in fundamental ways you cannot imagine. Not to mention the educational basis for any potential later life career switch.

Careers that require degrees also often include better benefits, more vacation time, paid sick leave, retirement contributions, increased scheduling flexibility, and other intangibles. Some jobs without degree requirements also include some of these, but many do not.

Consider that even if there is no economic value, a degree may still be worth many tens of thousands of dollars in the way it enriches your life.

Is this correct?

is Pete correct that 75K income for a potential degree (career path) is not enough to justify student loan debt?

No. This is absolutely incorrect, simply due to the fact that there are so very many variables involved. For instance, someone who finishes college with no debt due to scholarships and part time work can justify the degree even if their pay remains unchanged. Any answer that puts a simple number on such a complex question is flat out wrong.

I consider this especially egregious considering that where I live (low cost of living) an annual salary of $75k would be considered 'wealthy', and about double what the average individual earns.

Some Steps

Much of what has been presented is very "consider this", so some concrete steps to take to figure all this out may be in order. I would recommend you do this:

1) Determine the statistically average pay for the career you will likely end up in without a degree. This is easily found on Google.

2) Choose a career you may be interested in and look up the statistically average pay for that career.

3) Determine the degree and schooling you need to work in that career.

4) Determine the cost of that schooling. Take into account cost saving measures (commuting, community colleges, etc) and income opportunities (scholarships, part time work, etc) to minimize the cost. Use this formula to determine what you would need to borrow: (tuition + boarding + food + transportation) - ((part time job income - expenditures) + scholarships + savings).

5) Determine interest on the amount you would need to borrow and use this formula to determine total cost of schooling: borrowed amount + interest + income from work you would have done had you not gone to school

6) Now use this formula to determine the value of schooling: (annual salary of career - annual salary of uneducated career) * 50

7) Now use this formula to determine whether the degree is worthwhile: value of schooling - total cost of schooling. If the number is positive, your degree is worthwhile. Remember, this is a purely fiscal determination! It does not take into account comfort, happiness, or other intangibles.

8) Now determine if you can repay your loans in a reasonable amount of time. Use this formula: Repayment period = amount borrowed / (annual net salary of career - annual net salary of uneducated career). For this step you can estimate net pay as 75% of gross pay

Statistically speaking, if you are fiscally responsible, and choose a target career instead of choosing a degree, it should always be worthwhile.

Answer 5

I've always heard that student loans were justifiable debt, yet a few of these replies state otherwise.

Only a Sith deals in absolutes. Nothing is guaranteed by taking out a student loan. You certainly aren't guaranteed to graduate.

what should students consider about taking on student loan debt before getting a degree, such as, is Pete correct that 75K income for a potential degree (career path) is not enough to justify student loan debt?

Consider what you value a degree in the field you are applying for. Ask yourself if you will be financially stable after you graduate.

Consider the fact that you are investing in not only yourself, but the job market as well. What do you think the market for your job will look like by the time you graduate? Some fields like medicine will always have demand. But consider the overall decrease in salary growth for IT positions.

Consider the need for the degree. Will your employer likely require a degree of sorts? Or is it possible to obtain your goal position through other work experience? Lawyers/doctors would never be able to consider the possibility of a passing their certifications without some formal education.

Consider your desires. Lots of current students want the college experience. That certainly would increase the value of attending if it's something you want.

It's always best not to take on debt. But in some cases, it's a fantastic tool to get to your goal (buying a house, buying a car, creating a business).

Answer 6

It depends on when you achieve that 75k income also. Are you graduating with a bachelor's into a field where ~75k jobs are reasonably available to new grads? Or is that 75k job after 10+ years of experience AND a bachelor's degree?

Is your expected field littered with 75k+ jobs for experienced professionals? Or are there only a select few jobs that pay at that rate and the selection process for those positions is highly competitive?

Keep in mind also many teachers likely have student debt of their own. This may lead them to a view that since they are scraping by, you will be just fine scraping by too.

Also consider these teachers are people and just want to go home after work. Sticking with the canned answer of college == good may be earlier for them, since it's easy, available and likely reduces friction in these types of conversations they may have students.

Further consider what happens to them personally and professionally if they veer from the script of college being for everyone. How many indignant parents call them angry, demanding answers and/or an apology for telling their precious child that college may not always be the best route. Or if the school adminstration has issued an edict directing all faculty to never stray from a specific narrative. Teachers may be in a hard spot and have to guard their own futures also.

Answer 7

College is a two-part purchase. One part is a financial investment, which is your increased ability to pay for tuition and then turn a profit. The rest is luxury, which is anything that doesn't contribute to your ability to to pay for tuition. Many (including me) don't normally consider education to be a luxury, but since tuition is measured in dollars, the "value" of your degree must also be measured in your increased earning potential; everything else is "useless" or "consumption" from a finance perspective.

Financial Investment: A major goal of college is to increase your earning power. In a theoretical purely perfect-free-market world, the only people going to college would be those who could turn a profit on it (nobody else would get loans), and those coming from enough wealth to buy it outright. If you want to make a sound investment in college, by definition you need to turn a profit. If not, you would have been financially better off not having gone to college.

The two biggest factors that impact the financial investment aspect are the academic power of the university and your choice of major. High-powered institutions will be able to offer you major advantages that translate directly into market value, ranging from specialized areas of study, advanced curricula, access to top researchers, and connections to industry leaders. The area of study is probably even more important - a computer science graduate is primed for the job market; an English or sociology major won't have a career flow as naturally from their area of study.

Given these two factors, the calculation is simple - how lucrative is the field you want to study, and what kind of school are you going to? If you're going to be a starving artist, you can starve without being in debt. If you want to study mathematics and go into finance, the price tag on an Ivy League school is negligible. For everything in between, you have to determine how much your 4 years in college are worth relative to your life after that, as measured in dollars (e.g. If I get the same $100k/yr job, will it be worth an extra $500/mo for 10 years to have gone to X school over Y school? Maybe Y will only give me $80k/year? And so on.)

Luxury: As stated above, luxury is anything that doesn't directly contribute to the bottom line. Recreational clubs, sports, social life (parties), dorm quality, amenities, even the weather. Your entire degree can be a luxury, should you choose to study fine arts. Even a degree from Harvard is purely a luxury if you can't/don't get it to pay for itself.

You don't need to eschew luxury, but you must understand how much of your degree is luxury vs investment. If you don't, you're in for a world of surprise and pain. I will forever remember some amazing history and business classes I took, as well as a lot of the friends I made along the way. I also knew that nobody - not the university, the government, the banks, and not my future landlord - would accept happiness in place of dollar bills, so I also remember spending most of my time studying computer science and math.

The bottom line: Since tuition costs dollars, you must measure the value of your degree in dollars. Know what contributes to that dollar amount in your future projected earnings and what doesn't.

Answer 8

This chart, sourced from the article Household income in the United States offers a look at the difference one might expect from attaining a higher level education. Unfortunately, the WikiPedia article data is a bit old (2003), but it helps to compare differences in median income.

What's helpful is to think of this as the center number on a bell curve. It starts with thinking "half make more, half less" but also understanding that the 'above median' high school dropouts contains business owners who are in the top .1% of earners, and 'below median' members with advanced degrees who are serving up lattes at Starbucks.

This makes it tougher to do the math as one might be inclined to look at the numbers, take the extra income for a college grad, and calculate the net present value of such an increase. On reflection, that process may work in the aggregate, but not for the individuals who fall below the median in the group of those with higher education.

The other answers address the need to combine a look at the expense of college with choosing a field that offers an income worth the education.

Answer 9

1.Are student loans justifiable debt?

Depends on your situation.

I come from a small rural community where there are very few residents of the community that could afford to send their kids to post-secondary without the help of financial aid. Not everybody can get parental help with expenses, and that's okay.

My first two years at college were in a different province. I had to get student loans to help with everything - tuition, books, rent, groceries, gas - therefore, my loans were not directly related to the course I was taking at the time.

I know I definitely had time to get a job while completing that program - but I didn't. I was struggling with anxiety and depression issues at the time and for me it just wasn't feasible. I completed a two-year Graphic Design program that I've barely used since, and makes up half of my student debt, but I regret nothing because I used that time to get my head on straight and figure out how to handle my issues. Justifiable financially? Nope. Justifiable personally? Absolutely.

2.What to consider before applying for student loans?

What course/program/degree/etc. are you looking at? How labour intensive are they? Will you have enough free time for a part time job? If you can swing it, do it. It might suck not being able to hang with your friends all the time, but future you will thank you profusely.

If your chosen course/program/degree/etc. will take up every moment of your life for the next x-number of years, you won't have time to work. Look for scholarships. Apply to any and all you can find that even remotely relates to you and your educational field. I've seen scholarships go to people who have barely met the requirements for the application, but have gotten it anyway because they were the only one to apply. You never know!

Budget out first. Are you relocating for school? You might automatically look for on-campus housing like dorms and such, which are awesome in terms of convenience. However, when I relocated the first time, I attended the community college that shared a campus with the local university. When I looked into it, the residences on campus were priced at the university level - more than double my tuition for a semester. I looked around town and found a much better priced boarding house near the college and saved myself a few grand. Look around for options before settling - there might be something better if you take the time to search for it.

Living off-campus creates the issue of travel - will you have a car? Take the bus? Are you close enough to walk? And don't forget about the other basics - food, cellphone, and credit cards you may have (some banks offer a student line of credit). The art of budgeting is a wonderful thing.

All of these things you should definitely keep in mind, but the most important thing to look at has been mentioned many times already: Will you be able to afford to pay back your loans on whatever job you get with your program? Protip -> Start by looking up entry-level jobs in your field, because this is where monthly payments might get the better of you. It's all well and good to get into a field where experts make >$100k, but how long will you have to work until you get to that point? Everyone starts at the bottom, which lasts for a indeterminate amount of time. Make sure you plan for that (also, be prepared - experience is the bane of every new-graduates existence. Everyone wants it, but nobody wants to give it).

Answer 10

I wish there were a blanket answer to your question. It is very accurate that about half the salary difference from a degree is in signaling, which tells you how valuable it is as a signal. The problem is this is an average.

Intermittently I teach a class in financial planning. I require students to state their personal goals in concrete terms so that anyone who saw their list could buy the homes, cars, vacations and so forth they want in life. They also have to either state two jobs they would like to do in one location or two places they would like to do one job in.

Salaries are very geography dependent. Additionally, some jobs are very geography dependent. If you are planning on staying in your hometown, then a degree is less worthwhile unless there just happens to be a match between the needs in your town and your degree.

Likewise, undergraduate degrees are generic to some degree. The same textbooks are used all around the United States, including the Ivy League schools. If you do not stand out in some way, then you have a generic degree. That might be useful, but it might just make you part of the crowd.

Despite the griping about the liberal arts, they get jobs, and the jobs sometimes pay more than the jobs customarily thought of as high paying. Nonetheless, things are not equal in college. Math skills are critical for future salaries, even in art. When the 2008 financial crisis hit, the primary determinant of whether an art major was hired was their math scores and the highest level of math completed.

If you say, "I will take the minimum," then unless you are an aerospace engineering student or something similar, it may mean your degree doesn't matter. Art students who can do math can be curators and run the business of art. Education majors who can do math can be bank loan officers.

The second thing everyone should take is one class in computer programming. It isn't to become a programmer. Programming requires a very special way of thinking about problems. This skill is highly prized and most people with will never write a single line of software in their future employment. It isn't about learning to build a video game or an accounts receivable program; it is about learning to think in algorithms.

Master English. When I tell students who are learning to write business plans what they are to do, I remind them that this is a five million dollar book. It has an audience of one person, maybe five. Ten at most. Venture capitalists will tell you the book must be an A+, they don't fund A or A- quality work. It has to be a Stephen King best seller. You cannot have errors in comma placement. You need word choice that matches your audience and the nature of your business.

If you do the minimum and get your degree, then you have a very good chance of getting the minimum out of it in terms of pay.

I said about half was signaling. About one-quarter of the pay is in field-specific technical skills. The other quarter in value comes from forcing your mind to stretch in ways it doesn't want to. Students who just want to learn the skills in their field miss a lot of pay. That is precisely what an associates degree is. You learn exactly what you need to know to do a job.

Build a spreadsheet. If you cannot build a spreadsheet, then this is a bad sign as to your future pay. Spreadsheets are a core employment skill. Build a spreadsheet using either two jobs in one town or one job in either of two locations. Calculate what the schooling is worth.

Some fields do not require college. Think through what you want to do. Education is valuable, but only if it is education and not job training. If your brain hurts, then it is physically growing. Your brain has to lay down pathways for you to learn new things. That is why schooling is so hard. Your brain has to physically grow to learn new things. Your brain will fight tooth and nail to prevent that. That is what makes college so valuable. It makes your brain grow. The skills are nice too.

Finally, learn to mimic people who are better at things than you are. Look through the prose I presented here. Look at the hyphens between some words. Would you have put hyphens there? I used prose instead of text. What would you have used? Should you have used parentheses in the places that you used them, or were there better ways to express the same idea? If you do not know the answers to these questions, visit the English department.