The Frugal Prosumer talks about college and debt

As the economy goes sour and people can’t find jobs they think the answer is college. They believe that having a college degree will bring them a high-paying job, economic prosperity and help them get out of the economic slump.

The Frugal Prosumer understands that for many this is an unwise choice.

Lie #6 in my book “The Frugal Prosumer Philosophy” is:
  • You have to have a college degree to make more money!
  • Truth: You will make more money with an education. Going to college is just one way you can obtain an education.
  • College is first and foremost a big business and their product is marketed vigorously.
  • College is an investment and needs to be evaluated like any other investment. For a large number of people this investment never pays off because:
    • In the area of “cool” degrees (fashion design, game programing, etc.) especially, colleges graduate more than the number of available jobs. (i.e. Only one half of graduates from cooking school are in that field three years later, but they still have an average debt of $50,000 to pay off.)
    • Many college students don’t end up getting a degree for one reason or another. That means if their goal was to invest in a degree, that investment is down the tubes.
    • They don’t work in a job that requires a degree.
  • Even if they get a job because of their degree, they are in servitude to the heavy debt load.
  • Only about 20% of the jobs out there require a college degree.
  • Top schools have discovered how to make sure their students earn more. They only accept bright students that have high test scores. Graduates are smarter than the rest of the population and thus will probably earn more.
  • The federal government often guarantees student loans. That’s dangerous because the federal government is not subject to the same legal limitations as other creditors. The Federal government can ignore such protections as homestead exemptions and bankruptcy exemption laws, can seize any property, and garnish your wages and Social Security without first taking you to court. Regular creditors, unconnected to the Federal government, can not touch your Social Security benefits and have to sue and get a court judgement before they try to garnish your wages.
  • Parents who have guaranteed student loans are also at great risk and may even have their social  security benefits garnished.
  • A school loan is one of the few debts that even bankruptcy cannot get you out of.
  • Variable-rate loans can be real killers if interest rates go up. Variable rate loans were a major factor in the subprime meltdown in 2008. Don’t make the same mistake.
  • As bad as educational loans are, running up the credit card to cover expenses while at school can be even more dangerous. Credit card interest rates are much higher than educational loans and can be increased at anytime. A student loan may be able to be deferred, but a credit card balance cannot. Interest starts incurring immediately. A credit card debt of $5,000 can be much more burdensome and dangerous than tens of thousands of dollars of educational loans. The small consolation is you can declare bankruptcy on it.
Run the figures to see if college is going to be a good investment for you. It definitely is for some. For many college students however, and in spite of the propaganda out there, it will not pay off. When I was a guidance counselor, I ran the figures in a spreadsheet using the same numbers the college recruiters give but with some important factors they left out (lost wages while going to school, cost of debt, etc.) In many cases the numbers showed that by not attending college one can come out ahead financially.
From John's Book "The Frugal Prosumer Philosophy"