Student Debt is No Longer “Good Debt”
In the past, student loans were considered to be “good debt” because they were used as an investment in education. The idea was that the money spent on school would be easily repaid due to the large salary that awaited college graduates.
Today, student loans can still be a good investment, but they are much riskier than in the past. The rapid rise in the cost of attending school makes these loans more of a risk. We have also seen a number of situations where the hefty price doesn’t result in a high-paying job.
Sadly, many student loan borrows find they cannot afford the monthly student loan bills.
Many “horror stories” are often used as examples of a student loan crisis in America. The fact that this can happen is both disappointing and scary, but it doesn’t mean that college should be avoided. It just means students need to be smart consumers when picking a school.
Making a Smart Educational Investment
To avoid spending money on a school that is a bad investment, some research is essential. An excellent starting point is the College Scorecard, a website produced by the Department of Education. Using the college scorecard, prospective students can see the cost of school, the graduation rate, and average starting salaries. Low graduation rates and low starting salaries should be immediate red flags.
Taking things a step forward, it is also a good idea to look at the graduation and job placement records for the specific program that you plan to enroll. Some schools may be a great investment if you are in the engineering program but overpriced if you look at other programs of study.
Another important consideration should be your educational goals. If graduate school is likely in your future, saving money by attending a state school to get your undergraduate degree could be a really smart move.
Checking Sources
Many for-profit schools have earned a reputation for misleading students about graduation rates and job placement.
All schools have an incentive to paint as rosy a picture as possible. For this reason, a recruitment official isn’t the best source of information.
Here are some questions you may want to ask:
- What percentage of students who enroll in my program graduate?
- What percentage find jobs in the field at graduation? (Note: lots of students find jobs at graduation, you want to know about the people who find jobs in their area of study)
- How many people find jobs through career services or the job placement office?
- How many people work full-time helping people find jobs?
As you do your research, you may also want the school to put you in touch with a recent graduate. Someone who has been where you are thinking about going is an excellent source of knowledge. If the school cannot find someone, that should be seen as a potential red flag.
How Much Should I Spend?
This is the big question.
Every student should carefully consider how much debt they can live with. Spend too much and you may be stuck with student loan bills for the next 30 years or longer. Cut corners and there is a fear of missing out on great opportunities.
From a student loan perspective, the best rule of thumb is to try to keep total borrowing below your expected starting salary at graduation.
If the average grad is earning $50,000 per year, borrowing $30,000 for just the first year should be avoided. If you like a school but think it is too expensive, talk with the financial aid office. They may be able to assist in lowering the price in order to justify the cost of attendance.
The Dangers of Comparing to Other Students
Having friends attend a school or seeing all the smiling faces on a campus visit may be enough to convince some people that a school is a good idea.
The reality is that this sort of thinking can be really expensive.
Other students may have parents who pay for school. Other students may have large scholarships. Other students may be making a huge mistake, but they don’t realize it yet.
The truth is that little good comes from any financial assumptions made about others. Deciding on a school should require some objective analysis and a little bit of math. It may not be fun or fair, but it is the best way to protect your future.
Bottom Line
Far too many students and graduates realize their education was overpriced when it is too late.
It may not be easy to determine the value of an education before starting, but it is critical in order to make smart student loan decisions.
