The Insidious Nature of Student Loan Debt

I have a BA degree in Political Science and in the decades since I got the degree it came in useful once: it allowed me to teach English in Japan, a university degree being the sole requirement at the time. Since then I’ve not used it during my career and I likely never will. I have no regrets getting the degree however, because I got it from a state school and graduated with debt I repaid in four years teaching, making $2,000 a month. After returning to the USA with the Kid and the Wife I began a career in IT starting at the bottom by working at a help desk. Over the years I built the career into something that I enjoy and has proven lucrative. The Wife and I also made an investment in her education, graduating medical school 8 years after taking the first steps to do so, albeit saddled with enough education debt to choke an accountant. Together we live comfortably although not extravagantly, and looking back I appreciate that our current circumstances are the outcome of a series of clear-headed decisions and sacrifices we made long ago leavened by a dash of luck.

Now the Kid is approaching college age, and it will soon be time for him to confront some of the same decisions we faced. One of those decisions will be whether to go to college, and for years I have been studying the education landscape with a critical eye in preparation for this day. During that time I have read voraciously and talked to newly minted college graduates and grad students. What follows is based on my experience

If you are a high school student, don’t go to college just because your parents think it’s the next stage in life or its what everyone else is doing. Your parents likely didn’t finish school with sums of debt that they likely couldn’t have supported upon starting their careers, and they are using their experience as a guide. Unfortunately the world has changed tremendously since they got their degrees in the 80’s or 90’s, and their experience can seriously screw up your life. As for going because it’s what everyone else is doing, do yourself a favor and look up “tulip mania” and educate yourself on economic bubbles. These bubbles all burst, eventually hurting those who follow the economic advice of the herd. There are whole industries dedicated to keeping those bubbles going and for encouraging the stampede of young people into education, just as there were Indians who used to stampede herds of buffalo off cliffs.

The simple problem with college today is that it is too expensive. Costs have been rising above inflation for decades, inflated by the cheap money made available for borrowing through student loan programs. Student loans seem innocuous, even beneficial. After all it often makes sense to borrow to buy something that will improve your salary and marketability in the future.

Take it from someone who has to write a large four figure check every month to pay off student loans: Student loans are an insidious form of credit. Most students and their parents wouldn’t dream of piling up tens and hundreds of thousands of dollars in credit card debt yet when they think about student loans they lose their senses. All critical thought evaporates.

What is wrong with student loan debt? Several things, but the most important is that you cannot discharge it through bankruptcy. Go on a bender with your Visa card and you can declare bankruptcy and have the debt erased with only a damaged credit rating to show for it, and even that can be repaired after a few years of sensible living. But student loans are for life. They can never be discharged, and all the so-called forbearance programs like Income-Based Repayment do is spread out the debt over a longer period of by piling on the payments you are missing onto the end of the loan. Add in compound interest and that $1,000 payment you are avoiding today will likely cost you $3,000 by the time you pay it off.

Which brings up the subject of compound interest. Even though I had two mortgages under my belt I was still shocked by this simple accounting concept when it came to handling the Wife’s student loans. It bit me in the butt even though I should have known better. Here’s how.

Imagine that you expect to finish undergrad with $50,000 in debt. $50k sounds manageable, right? Now let’s say that your lender is spreading those payments over 15 years at 6.8% interest. You will end up paying back nearly $80,000. So that $50k you graduated with isn’t really $50k. It’s $80k, 60% more than you thought. During that 15 years of repayment you are going to have numerous debts such as car payments and perhaps a mortgage. You will also have to pay for everything that your parents have paid for. Sewer bills, water bills, personal property taxes, health insurance premiums, dental bills – the costs of living that as a child you’ve never had to consider let alone pay. This is why a general rule of thumb is that your student loan payment should be less than 10% of your income. Add in the other rules of thumb that a mortgage should never take more than 25%, a car payment 10%, and the salary that isn’t allocated to a bill quickly disappears. So to support that $50k debt you are going to have to make $70k a year. See for yourself.

There is just one starting salary out of undergrad that will net you $70k a year: petroleum engineer ($97,900). And that’s today. By the time you graduate that starting salary will likely be much less because other students will have gravitated towards that major, boosting the supply of graduates for a limited supply of jobs, driving down starting salaries. Maybe something else will fill the void, but since you don’t know what it is it is impossible to select that major years in advance.

Maybe you can console yourself that there are plenty of mid-career jobs that pay well over $70k in the Payscale survey. The problem is compound interest. Mid-career is calculated at 15 years, so to get to a point where you can afford the payments, you will need to forbear early in repayment which will tack those payments on to the end of the loan, boosting the total amount you have to repay and saddling you with payments beyond the initial 15 years. That $50k becomes $100k or more.

Everyone says debt is bad but no one really says why. Debt limits your choices. I think this is the most important reason for young people to avoid it completely or at least realistically understand it before taking on substantial chunks of it.

Say that you decide after graduation that you want to take six months off and travel around Europe. Traveling is one of the best things a young person can do. It exposes him or her to new cultures and different ways of living that cannot be learned in the classroom or in a book. The experiences gained from seeing the world are priceless and often life changing. One not only learns about others, traveling teaches one about oneself. For this reason it has been a critical component of liberal arts educations for centuries, but one that has been forgotten except through expensive exchange programs that limit and control new experiences, neutering the benefits of travel while expanding the costs. But you can’t don a backpack and buy a ticket to Istanbul to visit your Turkish friend when you have student loans coming due.

Say you have a great idea and want to start your own business. Starting a business is hard enough when you have little credit history, but go to a bank for a small business loan to get your idea off the ground when you have student loans coming due and you’re just wasting your time. Not only will you not get the loan your business needs, you will have to choose IBR and add to your debt while you work to get your business going, or you’ll have to skip it altogether and choose the first job that provides you with a decent chance of paying the loans back. I have seen first hand student loan debt push medical students into more lucrative specialties just because they pay better instead of those like family medicine and pediatrics that pay much less but require the same debt load.

The statistics I’ve seen suggest that people will change careers several times over their working lives. I’m 15 years into my second, and even within my current career I’ve changed focus and types of jobs many times. I would have been unable to do that if I had been saddled with student loans, forcing me to follow the money instead of my interests. The economy that is evolving requires people to act quickly and nimbly to stay employed and develop new skills, and doing this is much more difficult with student loans holding you back.

Like many liberal arts majors I considered going to law school. If there is one field that I would discourage my son from entering, it is law because it is the worst investment one can make, and the statistics bear that out. As this post by Walter Russel Mead states, unless you get into the top handful of law schools you are wasting your money on a degree that will pay much less than professions that don’t require expensive graduate education. Lawyers have a median salary of $50k, and to get that $50k/year they incur $125k in debt. According to Payscale, one could major in physics, avoid the $125k in graduate debt and start out making $50k a year, with the prospect of doubling that by mid-career.

So what am I telling my own son? I am telling him to not go to college until he has a goal in mind and college makes economic sense to help him to achieve that goal. I am telling him that after he finishes high school he should expect to travel and to work so that he learns about the world and himself. He has shown interest in the military but I have tied that to college, insisting that he only enter the military as an officer. He can attend junior college and get exposure to new fields there for a fraction of the cost of four year schools. As for the social benefits of college, there are alternatives that don’t cost $45/hour. He can pay someone to be his friend and hang out with him for much less, and besides, college friendships are overblown. I have a small stable of friends, and all were met on the job, in high school, or in non-college related activities during my college years.

There are benefits to college, but these benefits have become too costly. There is simply no reason that a 22 year old should saddle him or herself with debt that limits choices until middle age. That’s not what college was supposed to do, but it is what it has become.

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  1. lee:

    Spent too much time in college myself. I had a great time, I learned a lot, and I completely and totally agree with you. Right now, I am looking for a job. One problem I see for high school grads is that a lot require a two or four year degrees. So maybe the community college associates degree is the way to go for your son. They don’t specify what the degree has to be in, just that one has to have it.

    If I had WORKED before I had wasted my parents’ money and my time in school, I would’ve taken an ENTIRELY different career path. I do wish I’d gone into the military, maybe before college, maybe as part of college through ROTC. I wish I’d gone into engineering or computer science, because I find them interesting, they are both tangential to what I have been doing (a career I fell into), and provide more employable credentials than what I do have.

    One other thing is that I wish I had LISTENED TO MY PARENTS. They had wonderful ideas and suggestions, but I pooh-poohed them. Most of their suggestions decades ago are things I know wish I had done.

    Wishing your son the best of luck!

  2. Scott Kirwin:

    Most parents are right about things when it comes to their children. I think the wisdom comes naturally to us because we’ve sacrificed so much for our children and want to see then succeed and surpass us. The problem is we have reached an inflection point in education where past experience and knowledge can lead us astray when we counsel our kids. Plus the benefits of college have been unquestioned for so long that people don’t question them at all.

    Society keeps preaching that the way to a successful life is through formal education. This is a recent phenomenon, appearing only within the past 25 years or so, and it’s flat out wrong. Plumbers make better money, work better hours, and never have to worry about their jobs being offshored than most IT workers. I’ve paid electricians to come make changes to the wiring in my house more than the Wife and I make together on an hourly basis. I don’t mean to say kids should avoid college entirely, only they and their parents must question their assumptions in new ways and that Society needs to be challenged.

    At the same time kids need to begin to understand that they are going to reach a point where no one can guide them. For years they have relied upon their parents, their teachers, and their peers when making decisions. But the nature of the economy and Life itself is such that the only one who can make decisions is the young person him or herself. That fear that they feel in the belly as they quit their job or take on a new one in a new field is the ultimate sign of adulthood. They are on their own, and they own their successes and failures from that point on. For those of us who are well beyond that point, we can appreciate the exhilaration of the milestone at the same time we’ll never forget the fear and sleepless nights it brought.

  3. Jack:

    As we already know, in today’s world most companies want applicants to have a 4 year degree no matter what it’s in. I think that’s just so the hiring company can narrow their prospects down to those who had the fortitude to make it through college.

    To get around that problem, a person could go to a junior college for 60 credits, at $75 or so per credit hour, for approximately 5K. This is small enough that the parents should have little to no problems in paying that off. Even the kid themselves could pay as they go with a part-time job.

    Then transfer those credits to your local state-college where you can continue your education at $300 a credit hour for 60 more credits and end up with a bill of $18K. Add in books and such and call it $21K. Not cheap, but still, about the cost of a new economy car.

    This approach works for more general-type degrees, such as a degree in business, or media studies, or an English degree, etc. Now if one wants to get a medical degree, or a law degree, etc., then (as mentioned in your essay) this approach doesn’t work.

    Like you stated, you need to have a specific goal right from the beginning. In a world where a degree of any sort is favored, and if you’re not that particular in what that degree is, there is a way to get a 4 year degree relatively inexpensively. But you have to have a clear-cut plan.

  4. Dean Esmay:

    I made one of the biggest mistakes of my life by deciding to go and get a college degree in my mid-30s. My reward for graduating (with honors) was almost no measurable improvement in my earnings ability, debt I simply cannot pay.

    I openly encourage young people now to avoid college entirely unless they have a very specific career goal that they have in mind, or have someone else paying their bill for them, and even then to think twice.

    Not only has the price of degrees gone up ridiculously, but the value of those degrees has gone down at the same time. In most cases it is a TERRIBLE investment and, frankly, is bordering on indentured servitude in many cases—including, I think, my own.

    It’s an appalling system.

  5. Why I Actively Discourage Young People From Going To College:

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  6. Scott Kirwin:

    Your story is painful but all too common I’m afraid. College has been a magic pill for so long. It supposedly cures all ills. Lost your job to offshoring? Go back to school. The plant you worked at for 20 years close? Go back to school. Don’t know what you want to do with your life? View the smorgasbord of high paying careers at school. And school here means “4 year degree program.” I think committee colleges can be better investments, but don’t quote me on that.

    There are alternatives. I recently spent about $100 for several courses from The Great Courses. I purchased courses in rhetoric and logic that I would loved to take in school but don’t have the time or budget. Honestly, there is little difference to me between watching the courses at my computer or from a nosebleed seat in an auditorium packed with hungover undergraduates. More importantly to me, I’m ready to learn. I know my rhetorical skills border on the bombastic and I need to improve them, so I learn much faster. It may not work for everyone or for all courses, but it is a creative solution that avoids the pitfalls of the current educational system.

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  15. Mc Kiernan:


    What precisely did you expect to accomplish with a BA in Political Science ? Was it a 2 year or a 4 year degree ?

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  17. Scott Kirwin:

    Mc Kiernan
    It was a 4 year degree. Politics was my passion, foreign policy especially, and I had been told to follow my passion. So I got a degree in Political Science with a concentration in East Asian Affairs. I figured that I would study China and Japan, move there and learn about their cultures, then convert that experience into a career in the foreign service or with a multi-national. It almost happened. I passed the Foreign Service exam but washed out in the interview process. I could have tried again but I decided that I wanted a family life and wasn’t interested in attending dinners in the capital cities of dustpits.

    Like I said, I have no regrets about getting my degree because by the time I got it I was mature enough to understand the economics involved. The UC system in California was highly ranked and cheap to attend. It was one of the best bang for the bucks around – for residents. So I moved to California, worked a year to establish residency, and got accepted at UCSD and transferred. Smarter kids than me were attending junior college in California first, then transferring into the UC system after a couple of years. More of their credits transferred and they were able to save money by knocking out required classes at a discount in jr college.

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  19. The Insidious Nature of Student Loan Debt (Guest Voice) : YOU GO USA:

    [...] There are advantages to college, yet these advantages have turn too costly. There is simply no reason that a 22 year aged should saddle him or herself with debt that boundary choices until center age. That’s not what college was ostensible to do, yet it is what it has become. Scott Kirwin lives, works and writes in farming North Carolina. He blogs during The Razor and is a long-time member of the Watchers Council. This post is cross posted during The Razor. [...]

  20. Mc Kiernan:


    You followed your star as it were. And you’re still on the learning curve of life. Those are good things. I, also, think your writing skills have vastly improved over say five years ago when I thought your pictorials were the better forum for your thoughts. My son did the two year JC thing (he really wasn’t ready to go straight away to UCSD) but he did get his degree there in finance. We had encouraged him to do an MBA from Santa Clara University but he wasn’t interested. He has done very well for himself and has always been aware of the understanding that there are no free rides.I’m not sure our friend from west Dearborn understands that,or that education isn’t a plug me in “I’ll do the paper work now please pass the golden ring”.

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