Thursday, August 20, 2009

Locked In

There's an article today in the Wall Street Journal that to me, drives home a sad point for many in the college generation: You're going to be deep in debt. And without rising wages and a strong job market, debt is a stone that will drag many young people into years of taking whatever job will pay the debt servicing.

College costs have gone way up since I was in college ten years ago. I see these kids graduating with a B.A. degree in something with no particular demand (history, English, art, literature, etc., correct me if I'm wrong here) with $50,000, $100,000, $150,000 in debt and I just wonder, "WHAT are you thinking?"

I think part of the problem is the basic educational assumption of our time:
1. Middle class kids must go to college.
2. They should follow their dream (going to the best college they get into and majoring in their favorite subject, regardless of whether there is a market for it or not).
3. They can pay back the money later (without figuring out what it's going to cost them first because of course they are going to have a successful career).

This attitude, which is so pervasive that it's hard to even question it, may have been fine when college costs were reasonable and could be paid back in ten years, when incomes seemed to be rising, when peak oil was just a glimmer in Colin Campbell's eyes. But now I think it may be time to challenge this fundamental assumption.

It's not that I don't want kids to follow their dreams. Getting a job doing something you hate can be soul-sucking drudgery. On the other hand, being forced to take whatever job you can find because there is no demand for your skills and you owe $50,000 - 100,000 to a variety of government and private lenders, debts which can never be discharged, even in bankruptcy.... that's soul-sucking drudgery for twenty years. Drudgery that, with one late payment, can easily lead to a mountain of fees and rising interest rates and ultimately despair.

I just wish these kids had someone to educate them in basic financial literacy. Someone to tell them what one school vs. another is going to cost them. What kind of wages or salary they can expect when they get out. What their monthly payments are going to be when they graduate, and how that will relate to their salary. Maybe even (gasp!) the facts about peak oil. Just the basic facts. Then they can make an educated decision.

Surveys have shown for years that college graduates make more money. But what about junior college and public school vs. private school graduates? What's the difference in their salaries? What about the trade schools? What about the salary of a college graduate MINUS their debt payment - how does that compare? Some people may think junior college or trade schools or a public college are below them - but they should take another hard look at the financial consequences of their decisions.

Because the choices that kids make at 18, choices they make when they are still so young, hopeful, and naive, will still, in many cases, be following them at 28, 38 and even 48 years old. The choices they make at 18 can determine whether they can afford to buy a home, change jobs if they hate their first, go back to school, stay home with their kids. It may even determine whether their parents can retire at 62 or if they have to wait until 72.

So if you have a close relationship with a high school student, you may want to make sure they know basic financial information. Debt is no longer a matter that can be taken lightly, without serious discussion about the numbers, our assumptions, and the future. Debt incurred at 18 can affect the rest of the lives of the college generation, and they deserve to know the facts.


Kate said...

Great post! I wonder whether this will be conventional wisdom by the time my nephews are of age to think about college. I suspect/hope so.

Wendy said...

I found this really great article in response to your post.

I liked this line: it could be argued that the child with the college degree could live with the same expense basis as the one with the high school education, thereby freeing up more money for saving and investing. However, I would encourage a recognition of Parkinson’s Second Law, which tells us that “expenses rise to meet income”.

It would seem that by having the college degree, the individual is able to live a more ... extravagant (is that the right word?) life than the non-degreed person.

As the article points out the higher the income the more spending the person does, and I agree with that, but there's also the other side, which is that our youth are being completely sold on the Wal-Mart philosophy of entitlement, and many of them (75%) either don't go to college or don't finish, but they agree with Mr. Walton, who has told them that they deserve to live just like the 25% who put in the time and money to earn the degree and get the better paying job so that they could afford the more privileged lifestyle.

In short, we have a group of twenty-somethings who don't have a college degree, but do drive big trucks with hemis and have HDTV in their living rooms, and they are also swimming in tens of thousands of dollars of debt, but they'll never have the earning potential of their degreed counterparts.

I'm not sure which is better, but until we change the consumer mindset and discourage debt in general, I will always recommend a college degree to not having one. I just wish my twenty-something kids had listened to my advice.

Jen said...

My husband is an online teacher of English and has more work than he can handle. His parents said he would bnever make any money and now here he is making more tahn if he were dean of the dept. Online education is the fastest growing section out there and unless we stop needing to learn how to communicate with each other we willliely need English teachers. Even with PO over our shoulders, it is more likely that education online will last longer than the old B & M noone will be able to get too.

linda said...

Thank you for bringing this up. I have twins in Junior year of high school and I am in college myself. Last year, the school invited recruiters and psychologists who never disclosed who exactly they worked for, to talk to the kids about colleges. My son was content at the time to go to a local college for music. The psych who was speaking to his class tried to convince him that the school in question was not a good place because they have an open enrollment policy (which helps keep tuition down) so he would be among the less desirable of students and also that at his age, he should be thinking about gaining independence from the very parents who are going to the foot the bill for his far off college experience. She filled his head with dorm rooms and the ability to work through college in addition to loans in order to be "independent". She recommended Berkley School of Music. He came home and we had the long talk about both finances, true independence and manipulative college recruiters. Its going to be very difficult for this generation. I am very much about setting my children free when they are ready but I want them to enter the world without debt.