As lawmakers argue this summer over student-debt forgiveness, millions of parents are trying to figure out how much to borrow to send their kids to college in the fall.
Once an easy calculation families did at kitchen tables, paying for college is now a confusing and opaque puzzle. Almost all schools accept more than two-thirds of their applicants. But few charge families what they can pay without loans. That means nearly everyone borrows to pay for degrees.
As students around the country graduate with massive loans, protestors demand President Joe Biden ... [+]
Google “Is a college degree worth it?” and 44.5 million conflicting responses come back. Almost none explains precisely why debt makes that question so fraught.
After destroying low-cost public degrees over the past 40 years, free-market lawmakers turned college into a profit center. While tuition soared, Congress made it easy for lenders to earn rapacious returns loaning money to students and parents.
Though studies show a degree is the most reliable path to reach and stay in the middle class, student debt prevents millions from living the American dream. Higher debt means young households have lower incomes and fewer assets than previous generations. For parents, it means working longer and delaying retirement.
If families borrow more than they can comfortably repay, they risk losing the life premium that comes with degrees. Here are five reasons to avoid student debt:
#1. Myriad lenders eagerly compete to loan money to parents, the student lending industry’s newest target.
Thanks to historically high college costs and relentless cuts to government subsidies for students, parents now make up almost 25% of new borrowing for degrees. More than 70% of borrowers older than 60 are paying student loans they took to help children or grandchildren pay for college.
Colleges offer so many loan products with such confusing terms the system feels deliberately designed to frustrate. Unlike with subsidized loans, the government rarely forgives parent PLUS loans. To force repayment, officials garnish wages, confiscate tax refunds, and withhold Social Security checks for decades, dooming some families to generations of debt.
#2. Most student loans aren’t “good debt.”
Good debt is money borrowed to build wealth or increase income. Government subsidized loans fit the “good debt” category, but most private and parent PLUS loans do not. Families who borrow beyond federal government limits for subsidized loans risk losing a dangerous game.
Nearly 60% of students with debt never earn degrees, leaving many families in servitude to student-loan servicers. “Those who need loans drop out a lot more often than their non-borrowing peers,” the trade journal University Business reported in 2020. In other words, colleges take the money families borrow, spend it, and then refuse to refund a penny if students are forced to leave campus without degrees.
#3. Parents over-borrow to send kids to status schools, hoping the investment will pay off.
For most students, the salary boost that comes with degrees from super-selective schools is “generally indistinguishable from zero,” a study published by economists Stacy Dale and Alan Krueger concludes. Subsequent studies have shown that degrees from highly selective colleges help two groups most—women and low-income students.
Women’s higher wages, however, have less to do with elite college degrees than with the fact that they delay marriage, children, and stay in the workforce longer than similar women who graduate from less selective schools, the data show.
Low-income students with elite college degrees reap the most benefits. But few of them get the chance to enroll. Children whose parents are in the top 1% of income earners are 77 times more likely to attend an Ivy League college than those whose parents are at the bottom.
#4. Saving for college is easier than people think.
Contrary to conventional wisdom, saving for college rarely harms most families’ chances of receiving financial aid. Though saving for college can feel like a moving target, it’s important to start, set goals and stick to them.
Investing a little in a college savings plan every week—the cost of a McDonald’s family meal—adds up to almost $33,000 in 18 years at today’s rates of return. If the stock market continues to boom and interest rates rise, that investment will grow even more.
#5. As F. Scott Fitzgerald famously said, “Let me tell you about the rich. They are different from you and me.”
Wealthy pundits arguing that degrees aren’t worth the investment rarely encourage their own children to skip college. They have the means to pay over-inflated costs and often enjoy admission advantages that go to families with no financial need.
College graduates will earn 66% more than those with just high-school diplomas in the coming decade. At least 65% of new job openings will require degrees beyond high school, according to a Georgetown University study.
Graduating from college—with little debt—is crucial for anyone who wants to build wealth and get ahead financially.
