The Finance textbook answer you will often hear is that debt is good when it helps you make money and bad when it costs or loses you money. And that logic is hard to argue with on a theoretical level.
This argument is typically applied to the statement: College grads generally make a lot more money than non-college grads over their careers. So, high school grads should go for it, borrow away and invest in college education. It will make them more money, therefore that makes it “good” debt.
Whoa now, not so fast, it’s not that simple! While that argument could be valid for you, it distorts the realities experienced by too many college grads to be universally accepted as the best practice. General theories and averages are helpful, but they often miss important wrinkles and nuances that matter – a lot!
For instance, choosing a college major that will lead you to a job in the $30,000/year income range or entering the workforce when the economy is so lousy that there aren’t many jobs available, all while trying to manage your college debt tally of $70,000, can result in an epic fail for your personal finances. Your expected earnings aren’t much (if any) better than a high school graduate, and though you’ll leave college with some great memories and a piece of paper on the wall you’ll have a mortgage (college debt) payment but no house to live in.
Let’s say you didn’t have to spend so much on college in the first place. You can go to a more affordable college, start out at a two-year community college and do your last two years’ education at a four-year school, or enroll in one of the military programs to cut your college costs and avoid all of the debt other students take on in college. Same degree, but at a lower cost.
Maybe your plan is to work for a few years out of college, then quit to be a stay-at-home parent. And let’s say your graduation debt is $30,000, but your expected surplus earnings (vs. a high school graduate) is only $20,000 over that time. Would you pay $30,000 to get a $20,000 ride? Of course not! Then, don’t do that with college either.
Do some research and math before you even go to college:
- Figure out what those with your intended major make when they get jobs.
- Figure out how much debt you are likely to have at graduation at each of the college’s you are considering.
- Figure out whether those numbers make sense for you and whether the investment is worth making.
In some cases, the numbers probably will work as long as you maintain a high-paying job when you’re done with school. In other cases, debt – especially large debt – will not only not be a good investment it could financially cripple you for many years after you graduate. Don’t take it from me though go talk to recent college graduates to get the real deal. Ask them if they are working in the field of their major and for how much money. Ask if they had any trouble finding a job in the field of their major. Count up how many are working cash registers or at bars, and how many say they wish they’d never taken on college debt.
They won’t answer with any theories or generalities. They will give you the real scoop on how the whole college debt thing is working out for them. They are the experts you should trust more than anyone else.
Then there’s this entrepreneur, Seth Marsh, founder of CUED-IN. I have known Seth since before he went to college. I have seen him live this whole story out himself. You should care – A LOT – about what he’s doing with this website. Why? Because he is you, just with 10-15 more years on his odometer than you.
It should be striking to you that this is what he’s doing with his creative energy and juices. He knows what he’s doing. He sees and knows what’s going on for you and your generation. College debt is crippling young grads, and he’s going to help solve that problem by helping you! He created this website with the compelling vision of helping you and millions of others get the college financing thing right. If you follow this website and the content he’s planning to launch here over time, you won’t have to spend all your time figuring out how and where to do the research and math I recommended above.
All you need to do is pay attention to what’s here, apply it to your situation, and enjoy the benefits once you’re done with college and making your mark on the world. Instead of spending the first ten years of your career climbing out of the college debt hole like everyone else, you may get out in five or seven, maybe even zero!
How ever many years you are ahead in this game is how much sooner you’ll be ready to buy your first new car and house, or get married, have children, travel and retire. So, if the whole idea of college is to help you get ahead on those things, I recommend getting started now by planning how you can keep your college debt load as low as possible. You’ll find a whole lot of help here at CUED-IN!
James W. Smith, CFP®