Never Bankrupt Yourself For a College Education

There was a depressingly interesting article early this week – describing the fortunes of yet another couple whose financial lives have been ruined by student loans. This article dealt not with students, but with the parents who took the loans to pay for their daughters to attend college, to the tune of $115,000 – but are now unable to pay. Why bankrupt yourself for a college education? I’ve never been able to grasp the concept.

In Parents pay the price for children’s student debt a Massachusetts couple in their 60s find themselves facing financial oblivion at a time in life when they should be downshifting into retirement. To be sure, the couple is in trouble in large part because the husband sustained a work related injury that left him unable to work. They now live on a single income provided by the wife, who sadly confesses that she will never be able to retire.

Never Bankrupt Yourself - Or Your Children - For a College Education
Never Bankrupt Yourself – Or Your Children – For a College Education
We can’t overlook the injury factor, but $115,000 is a lot of debt, and leaves you incredibly vulnerable to disruption. In this case, it was the parents, but more typically it’s the student.

This story reinforces my conviction that thousands, maybe hundreds of thousands of people are bankrupting themselves (though bankruptcy doesn’t get you out of student loans) in the cause of getting a college education.

You should never get close to that level of debt for a college education, and here’s why…

Get Your Head Out of the Past!

I’m of the opinion that one of the primary reasons so many people – particularly parents – are so willing to pull out all the stops to pay for a college education for their kids is because they mistakenly believe that college today is just like it was when they went. Wrong!

College is now MUCH more expensive than it was 20 or 30 years ago. When I went to college in the 1980s, you could expect to earn in the first year about what it would cost to attend an in-state college for four years. No more.

If you had to borrow $10,000 to partially pay for your education, you could repay it in two or three years. Today, attending college requires loans that are often the size of a mortgage, only there’s no house securing it, that you can sell if you get into trouble.

Worse, in many fields, jobs no longer pay a living wage, and in others, there are no jobs at all. The syndrome of the unemployed/under-employed college graduate is the new reality, and one that cannot be overlooked.

Just because a college education was so incredibly cost effective when you were in school doesn’t mean it’s true today.

Sky’s the Limit Isn’t a Workable Strategy

Let’s grant that a college education is still a worthwhile investment; I believe you’re generally still better off with a degree than without one. But that doesn’t mean that it’s a benefit without limits.

Would you knowingly overpay for a house, a car or a stock? But many people do just that in regard to college – they close their eyes and assume unlimited benefits.

A college degree isn’t magical. Like every other product or service you can buy or invest in, there are limits as to what it can do for you.

A College Degree Is No Longer a Guarantee of Anything

A college degree once carried certain implied guarantees. For example, even if you didn’t get a job related to your major, you could be assured of getting a job somewhere. It also often enabled you to leapfrog over the entry level, right into middle management or it’s equivalent. And it was once a near certainty that you’d at least achieve upper middle class status with a degree.

Today, none of that is true. For one thing, there is no longer a shortage of college educated workers. For another, globalization and technology are no longer just replacing factory jobs, they’re replacing all types of jobs, including those in the college norm.

The reality is that the economy is no longer growing in leaps and bounds. Stagnation – with occasional bouts of sluggish growth – is now the norm. Businesses are maintaining and increasing profitability through relentless cost cutting. And in the service economy that we are, that means jobs. The future isn’t looking any brighter on this front either.

What most matters today are ambition, innovation, relentlessness, willingness to take a chance, ability to adapt and to survive, and the ability to stay motivated. College can’t teach any of these qualities, but I have an uncomfortable feeling that many parents are hoping it will do just that.

There Are Always Less Expensive Ways to Get a Degree

What makes the student loan mess so tragic is that in most cases there are less expensive options to a high cost education. Whenever I hear of someone who is carrying six figures in student loans I make the (reasonable) assumption those options have been ignored.

There’s always community college, public colleges, not living away at school, or doing a work-study combination. Regrettably, too many students want the TV version of college. Even more regrettably, so do their parents.

Pay for it if you must, but don’t complain about it later. It makes a mockery of those who wisely chose options that were closer to the ground.

Sometimes Things Aren’t “Normal”

This might be the biggest reason people shoot the works for college. In our culture, college is considered to be normal. Junior is born, attends elementary and middle school, then high school, then goes on to college. Of course – how could he or she ever be a success in life otherwise? It’s the normal course.

Now that the cost of college is out in the stratosphere, borrowing to pay for it is also normal.

Stop the presses: no it’s not. When we start accepting the idea of borrowing money – especially a lot of it – as normal, it isn’t normal. It’s a perversion of normal.

We’re teaching young people to borrow for what they can’t afford, and to worry about paying it back later. What kind of lesson is that???

If that’s normal, then normal has become mass hysteria.

I submit that that kind of thinking also displays a lack of confidence in kids. Remember those qualities that I mentioned earlier, like innovation and ambition? Those are largely qualities that you develop by living life. We’re so convinced that our kids won’t learn any of that, that we’re willing to spend a fortune paying to have it injected into their heads in a class room.

You Should Never Pay More For A College Education Than You Can Afford

This gets down to the bottom line – literally. Let’s say that a college education is the greatest and most noble gift you can give your kids. You can’t give your kids what you can’t afford. That’s committing economic suicide, which is exactly what the couple in the article did. They borrowed to give their girls a good education, with little regard to what it would cost.

Just because a bank is willing to lend you money doesn’t mean borrowing it is the right thing to do. Student loans are being made without any regard by the lenders as to how they’ll be repaid. And it doesn’t matter, because the law will not allow you to not pay, even if you file for bankruptcy. You don’t get student loans on merit – they’re virtually automatic.

And you know the saying – if something sounds to good to be true, it usually is? Why don’t we apply that question to student loans? And it isn’t somehow right simply because everyone’s doing it either.

If you have to borrow to pay for more than half of a college education then you can’t afford it and you need to lower your sights. Bankrupting yourself, or worse – you child – for a college education is setting you/them up to fail.

If you’re making the decision to attend college, or for your child to attend, please take your time considering how you will pay for it. Be more conservative. This is one of those bad things in life that, once done, cannot be undone. Your optimism about your (or your child’s) future won’t get them out of the hole they’re about to dig themselves into.

In the mortgage industry there was much talk about predatory lending. And that’s what student loans are today – predatory lending. Fully digest what that means before signing up for one.

( Photo by bradleygee )

10 Responses to Never Bankrupt Yourself For a College Education

  1. Our son graduated with a Master’s in 2006 and no student loan debt. Granted, college costs have gone up since then but here’s how we did it. I started saving in his college fund as soon as we learned I was pregnant. We made a contribution every month until he started college. Sometimes it was only $25 but as we could afford more the amount increased substantially. Our son worked summers when he was in high school and college. He worked after school jobs when he was not playing football. He was valedictorian of his class which got him scholarships. As a senior, he took AP courses and tested out of a couple of classes, saving the amount per credit hour those courses would cost at university level. He proficienced out of another couple of classes during his university placement tests. He chose a major wisely and didn’t switch once he started. Changing majors often requires different pre-requisites in basic curriculum so no starting over. Finally, his masters program gave him credit for some required classes that he took at undergraduate level, so he didn’t have to repeat them in the masters program, thus saving him nearly a semester of work and cost. Finally, and perhaps most importantly, he attended our state’s flagship public university instead of going to a private or out of state school that costs significantly more. All in all, we worked as a team to get him a great education with no debt for him or us.

  2. Hi Kathy – Wow, that’s a REAL story in this day and time. 2006 wasn’t all that long ago, and while costs have gone up since, they were pretty high even then. Your family did everything right, including your son. Unfortunately, a lot of college aged kids aren’t that focused or disciplined. They do change majors, which adds to the time they spend just getting an undergraduate degree. In fact I read that it now takes the average student a full six years to complete their four year degree! And a lot of them don’t work at all while they’re in school. That forces them to rely on student loans for survival, not just for school related expenses.

    I think there really needs to be limits on these loans. Most people are being set up to fail. But your son did it right and has his degree (a masters no less) and no debt. That’s the way to start adult life, even if he did have to work his way through. And though this isn’t part of the discussion, I’ll bet your son is a better person/employee for the work experience he gained. An employer will notice the difference I’m sure.

  3. I belive you nailed it with this statement Kevin:

    “[Parents] are so willing to pull out all the stops to pay for a college education for their kids is because they mistakenly believe that college today is just like it was when they went. Wrong!”

    I graduated from college in the early 2000’s, and I would say that was the tail-end of the “college glory days” as it relates to getting a job simply by having a degree. I had multiple offers right out of the gate, and there was still more people looking for candidates vs. people able to fill them.

    That all changed with the recession in the latter part of that decade. Companies trimmed so many jobs in an effort to reduce overhead that it created this massive unemployed pool of college educated candiates.

    Now you have a record number of college graduates trying to enter the workforce each year and compete with people who posess both a degree AND experience.

    Its sad to say, but at a previous job I hired multiple college graduates at $10 an hour. That was the max budget my department was given, and a college degree was required. We would disclose the hourly rate in the job listing, and I would still receive over 100 applicants for each posting.

    There is a TON of value in a college education (varying quite a bit depending on which degree you choose) but it certainly is not the old days when they just threw you a $40k a year starting salary.

  4. Hi Eric – Thanks for sharing your experience. I would a agree that the value of a degree has declined since the early 2000s. Depending on what field your in, it really started to decline during and after the dot.com bust of the early 2000s. But when the Meltdown hit in the late 2000s, the decline was obvious. Now you really have to weigh out the cost of going to college at all, due to the high price tag, the likelihood of student loan debt, and the dearth of living wage jobs. I think the steady increase (or flood) of college graduates has finally caught up with us. Which is to say that I don’t see the current dynamic changing for the better any time soon.

  5. You are exactly right – depends on what field you are in. A problem regarding degree choices is students are still under the impression that they just “need a degree.” In some industries that is the case, but the difference in job potential for a mechanical or software engineer vs. a liberal arts major is tremendous.

  6. True, about the perception of needing a degree. But my sense is that if you think you need a degree just because you need a degree, then you should get one as inexpensively as possible. Ie, community college, in-state schools, commuting, etc. You shouldn’t be spending six-figures, and going deep into debt, just to satisfy the perception that you need a degree in something. I scratch my head anytime I hear of someone who went to a top school and went into debt to get a degree in sociology or cultural studies.

  7. I read the Yahoo article and it was really tragic. My first thought was why aren’t the kids helping to repay those student loans? They are the ones who will benefit throughout their careers and they should help repay the loans, especially in light of their Dad’s injury.

    The problem is that it’s virtually impossible to get a professional job now without a bachelor’s degree, so anyone aspiring to those careers has to get one. Even worse, the university system has a monopoly on higher education and backed by student loans that can’t be bankrupted, they can raise tuition at will.

  8. Hi Bret – There is a study out that I can’t locate, that shows a direct correlation between rising college costs and student loans. The schools are raising the fees because they can – because student loan debt is making it possible. It’s the same situation that created the mortgage meltdown. Prices are going up, financed by debt. I don’t entirely blame the kids, because the entire system is blessing this perversion, and leading them to believe that it’s perfectly normal.

    But I’m also starting to think that it’s close to running its course. The cost/benefit ratio of college has seriously deteriorated, to where kids, especially from middle income households, will need to consider (or create) other options.

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