Higher education or indentured servitude? Why you probably shouldn’t go “all in” yet
I will never forget the first credit card I ever held in my own name. It was a Discover card, a new brand at the time. A booth had been set up at my college campus during freshman year, and they gave me a free T-shirt as an incentive to sign up. My initial credit line was $500, and I promptly hit that limit and, six months later, Discover was happy to double it to $1,000. Fast-forward ten years and the sum total of all debt I had amassed (credit cards, student loans, auto loans, etc.) exceeded my annual salary six years into my career.
Debt is good, right?
In our day and age it has become accepted “wisdom” that debt is good or otherwise benign. Leaders like former Vice President Dick Cheney espouse, “Deficits don’t matter.” Opinions range from economists who believe that our current system of fractional reserve banking enables reckless monetary expansion via the creation of credit debt to VP Cheney to somewhere in between.
The fact of the matter is that when used responsibly, debt is a legitimate tool that can be utilized to advance our goals. Like any tool, however, when used improperly undesired outcomes may result. The Great Financial Crisis of 2007-2008 (GFC) and its continuing ripple effects drive this point home. Much as the Great Depression of the 1930s has become a landmark event, a financial signpost if you will, the GFC is the same for our era. Both of these seminal events involved excess credit growth that resulted in inflated asset prices that eventually collapsed.
Your goal right now
What is the single most important financial asset one should possess during a crisis such as this? Simple: a job or other steady source of income. All other financial assets are secondary. In the absence of a crisis (when our baseline needs are already met), it is perfectly rational to want to have a good standard of living, which entails securing as high a salary as possible. The purpose of obtaining education is to secure skills that will make one so marketable that this steady source of income never dries up, or otherwise can earn you top dollar for your services.
What happens, though, if the skills you obtain become obsolete? Globalization and technology continues to radically disrupt previously solid industries (such as manufacturing) and companies (Kodak, Polaroid, Chrysler, and GM all come to mind). Within our own lifetime we have also seen new industries created from scratch such as biotech, clean energy, and financial services compliance. The Affordable Care Act represents the most comprehensive overhaul of the American healthcare system since the creation of Medicare in the mid-1960s.
Knowing what you know now, would it have made sense to have gone “all in” with borrowed funds at a young age in a specific sector? As a young person just starting out, the possibility that perhaps you are not really sure what you want to do should be considered. Assuming you are borrowing money to do so, does it make sense to indenture yourself to a given career line, just to find out later that it was not for you but you are now trapped because you have a loan payment coming due every month?
Higher education is an industry
There are many institutions in America today that offer a multitude of education options. Choosing the best option is a tricky endeavor. The concept of diminishing returns definitely applies here. The idea that you need to pay top dollar to get into Harvard to become successful is a fallacy, an idea that should be turned on its head. First, not everyone that would be able to get in will succeed (as in: attain a sufficiently high GPA) to make the entire endeavor worthwhile. Those who do not succeed may become demoralized, and perhaps even drop out because they cannot keep up. It would have been better for that person to have attended a less prestigious school that still provided a quality education, done well there, and emerged with a manageable financial obligation relative to the unmanageable financial burden Harvard would ensure.
This idea that “all education is good” and “the more and bigger the better” has strong support and is perpetuated by both the public and private sector. Government likes it for obvious reasons. The private sector (namely banks) likes it because it is a lucrative and safe business to be in, as the U.S. government provides backing for education loans. These parties work hand-in-hand to ensure that this dogma is not questioned. In pursuing advanced education, ask yourself this:
Knowing what you know now, would it have made sense to have gone “all in” with borrowed funds at a young age in a specific sector? As a young person just starting out, the possibility that perhaps you are not really sure what you want to do should be considered. Assuming you are borrowing money to do so, does it make sense to indenture yourself to a given career line, just to find out later that it was not for you but you are now trapped because you have a loan payment coming due every month?
The pay-as-you-go approach
You will come to find that learning is a lifelong endeavor. As you grow both personally and professionally, your attitudes, opinions, beliefs and even values will change. On top of this, exogenous factors will further render any fixed ideas one may have at a young age invalid.
Give yourself options now to enjoy this growth later in life! Consider carefully the here and now, take it step by step. The ability to strike a balance between your needs now and later in life will be the critical factor in succeeding.
