Four Common Uses Of Debt That Keep You Poor
By: Building Arks With Jason Clendenen
Tags: Real Estate, Debt, Wealth, Money, Investing

The Price of Education

A university education has a significant impact on a student’s life and finances. Although it is part of the American dream to go to college, it is important to understand that not all schools or degrees are created equal, and how you pay for school (or how much you pay) can set your life up for financial success or can weigh you down like a ball and chain.

I believe that a lack of financial education in the general public helps to fuel the idea that everyone needs to go to college and that it is always a good financial decision to do so.

Although there is a high correlation between having a college degree and a higher net worth as shown in this article, summary statistics can be misleading.

For instance, the median net worth of 55 to 64-year-olds with college degrees is more than five times as high as those with only a high school diploma ($712k vs. $133k). However, the 25th percentile (bottom 25%) for those with college degrees is about 40% lower than the 75th percentile (top 25%) for those with only high school degrees ($221k vs. $366k), meaning that there is quite a bit of overlap in the net worth of those with college degrees and those without.

This indicates that there is a large group of college-educated people that are not able to build wealth, and are poorer than a large percentage of people with only high school diplomas. Although there are undoubtedly many reasons for this, the choices people make about where they go to school, what degree they get, and how they pay for it likely have a significant impact.

In the US, unlike Europe, our universities are not free or even cheap. College is one of the largest expenses that families have to pay for in a child’s life. But there is one significant cost savings available at US colleges — in-state public tuition is SIGNIFICANTLY lower than out-of-state or private school tuition (often 75% cheaper or more).

Even though this is well-known, there are still many small, private schools full of students who are taking loans to be there. It makes little financial sense to spend more money than you need for a college degree, so why not go to an in-state public school and reduce your debt load?

The next decision made by students is what to study. In the US, many kids grow up being told to “follow their passion” with little consideration for the financial implications. What you see is many kids getting degrees with few job prospects that end up back working in jobs that don’t require a college degree in the first place, like waiting tables or delivering packages.

Imagine the financial implication of going to school, getting a degree, racking up $30,000 in loans, then going to wait tables.

I have friends that ended up in this unfortunate situation. If you are going to work in a job that doesn’t require a college degree, it is probably not a good idea to take on student loans to get one.

You can see the range of starting salaries for various jobs that require degrees in this article. It ranges from an elementary school teacher at $44,000 per year to a software engineer at $106,000 per year. If you think about college as an investment, which one has a better return?

Not everyone needs to be a software engineer to be successful, but choosing a field that has good employment opportunities and good salaries will certainly set you up better financially. Not to mention that degrees like engineering usually have well-paid summer jobs available to help pay for school and avoid taking debt.

I was able to avoid debt for my education by studying engineering at an in-state public school, making good grades and getting scholarships, and working summer internships. The scholarships covered my tuition, and the summer jobs covered my living expenses. I didn’t have to work during the year, and I didn’t have to take on any debt.

Think about a college education as an investment, and you can try to make better financial decisions that will allow you or your children to be better prepared for life. Reducing your costs and increasing your income prospects are the way to go when thinking about higher education; you will take on less student loan debt and be better prepared early in your adult life.