Brief: At What Cost? (2013). As with his earlier brief, Has the 401(k) Been a Failure? (a previous SavvyRecommendation), Robert Hiltonsmith of Demos asks a provocative question. In short, what is the long-term financial cost for a student that incurs debt in the pursuit of higher education?
Mr. Hiltonsmith notes that student debt has skyrocketed over the past decade, quadrupling from just $240 billion in 2003 to more than $1 trillion today. Moreover, if current borrowing patterns continue, student debt levels will reach $2 trillion in 2025.
How Damaging is Debt?
The brief attempts to quantify just how much the soaring debt levels impact college-educated households’ financial stability over a lifetime. It creates a model using data from the Federal Reserve Board’s Survey of Consumer Finances and other datasets to estimate household debt and assets, comparing the projected debts and assets of a college-educated household with average levels of education debt to a similar household without debt. It finds that, over a lifetime of employment and saving, $53,000 in education debt leads to a wealth loss of nearly $208,000. Shocking numbers indeed.
In the brief, Mr. Hiltonsmith opines that student debt is now nearly a prerequisite for a college degree. While I agree that is certainly the prevailing view in our society, I don’t believe that is necessarily the case. In a comment to the blog post Rethinking Higher Education-Part 1: Is A College Degree Really Worth $100,000? at Bright Balance Ministries, I noted three ways – often overlooked or not fully explored – in which debt can be avoided or significantly reduced:
- Military Service. Individuals can learn a skill/trade while earning decent salary/benefits, use programs like Tuition Assistance (government pays 75% of costs) while on active duty, and the GI Bill once separated from service, all with the added bonus of serving your country. Individuals can earn a college degree (multiple degrees in fact) to pair with their training and real world experience at no expense…other than the service.
- College Savings Plan. Forward looking parents should start a college savings plan (e.g. 529) as soon as possible. Unfortunately, too many parents are financially illiterate which negatively impacts their children with regards to matters such as determining how to finance an education.
- Community College. There is no requirement, or need, to attend a university all four years. A better option is to spend the first two years at a local community college; staying at home and working at least part-time. Overall it is a great way to spend less money and be more prepared. The first two years are primarily spent just taking core courses (e.g. English) and lower level specialty courses anyway.
Correctly I believe, Mr. Hiltonsmith notes that a college education remains the surest path to a middle-class life. However, evidence has begun to mount that student debt may be far more detrimental to financial futures than once thought, particularly for those with the highest levels of debt: students of color and students from low-income families.
A PBS NewsHour segment entitled, Is a College Diploma Worth the Soaring Student Debt, offers a nice round-table discussion on the topic and is worthy of a viewing.