The Student Loan Myth

For the past generation or so, lenders and financial gurus have been promoting the myth that all student loan debt should be considered Good Debt. Student loan debt is said to be good because it is debt accrued in the pursuit of an education, which is an asset that will (ideally) product more money. The theory goes that you will take out student loans, get your degree, and then get a job earning so much money that paying those loans back will be a piece of cake.

To some extent this isn’t bad thinking. An education is certainly an asset that will increase your earning power. However, the problem is that people have bought into this myth so entirely that they are coming out of even comm

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7 Responses to The Student Loan Myth

  1. Jeff says:

    From personal experience, joining the military in order to pay for college is a bad deal. In fact, I was told this during the first day of basic training (I didn’t join for college). Think about it this way, if you go in debt and go to college, then after college you work like a dog and live as frugally as possible (much like military life), you will come out financially ahead.

    The military isn’t a job. It’s a way of life. It will rip you from your family and friends. It is an entirely different culture and it will, for better or worse, change you as a person. I loved my time in the military and I have no regrets. However, any of my friends will tell you that I am a far different person than I was 10 years ago.

  2. Tom says:

    I believe the student loan “craze” was driven by the same process that caused the housing bubble. Student loans, just like home mortgages, were pooled, sliced and diced and sold off to every big investor and his brother. This led to lower student loan interest rates, which then justified higher prices for “education” because there are always many people who only worry about the monthly payment and not the total cost. Possibly as a result of this, the cost of higher education has been growing faster than inflation. I suspect we can thank the “financial engineers” and their securitization” processes for playing a big role in this.

  3. Could be true, but where’s the math? What if the present value of a Stanford education, compounded by the additional earning potential over 50+ years that it can provide, more than makes up for the student loan discount of choosing a lesser school?

    Not sure that it’s true, but the choice (in general) is really a math question.

  4. Offended Philosophy Grad says:

    What’s with beating up on philosophy majors as an example? Why not pick “forensics,” “interior design” or other “fad” majors? Studies show that philosophy majors make more after 10 years than Information Technology Majors:
    http://economix.blogs.nytimes.com/2009/07/20/do-elite-colleges-produce-the-best-paid-graduates/

  5. Jennifer says:

    Student loan debt is said to be good because it is debt accrued in the pursuit of an education, which is an asset that will (ideally) product more money. The theory goes that you will take out student loans, get your degree, and then get a job earning so much money that paying those loans back will be a piece of cake. If you have just graduated and found your first job, you need to save every penny in order to manage the monthly payments for several student loans you possess, you have both the private and federal loans, then, the best available way of saving money for you is student loans consolidation being a great option to save hundreds of dollars.

  6. bentonlife says:

    I agree with the bulk of what this article says. Think about when you get paid up front for a job you still have to do in the future. It’s great getting the money, but the effort of doing the job 2 months later, when the money’s been spent and you aren’t seeing any rewards, always makes the job so much more tedious. Similar thing here. You have the qualification, but spend how many years still dealing with the repercussions of the debt. And as far as women go, and I’ve seen it happen all to often, you end up married and bringing up kids, and not even doing that job! Your points on working while studying, and living frugally do actually make a difference. People see these as small things compared to the size of the loan, but added up month on month over the duration of your degree, make a substantial difference. My daughter had a lot of teasing from “friends” about the fact that she had a part-time job, didn’t take spring break trips and believe it or not, even that she didn’t have an android, but used a basic net10 phone (which I might add, gave her more connectivity and minutes at a far lower rate than some of the others). She is now qualified and owes probably 1/3 of what these friends owe! My only disagreement on this article is that one should choose a “money making” degree, and not something you may be interested in. These are the people who are more likely to have a higher drop out rate or never use their degree. You can earn all the money you like, but if you hate the job, you won’t be happy and will probably ditch it sooner or later anyhow. People usually make a success out of something they are passionate about, regardless of how lucrative it is-or isn’t!

  7. ndakapiwam says:

    You give very sound advice. I could not agree with you more. I know from experience that student loans can be tough to pay off even with a good job. I wish somebody had advised me back then before I just went ahead borrowing without giving a thought to how it would impact my life in future.

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