Submission statement
-
The college debt debate overlooks the huge college wage premium and focuses instead on the nominal amount of debt, which although large, is still small relative to wages. Americans earn among the highest incomes in the world, when combined with low taxes, makes college even more worthwhile. I was surprised myself to see that the average income for college grads is so high: $70k. Just a few decades ago, it seemed like high 5 figures was uncommon, but now the norm. When you make so much, who cares about $3-5k/year in student loan payments.
-
The incentives are aligned in such a way as to encourage the accumulation of a lot of debt, whether it's college or home ownership. Savers seem to miss out (penny wise, pound foolish as it's said). This goes against conventional wisdom that debt is bad or saving is always good. The people who seem to have the most wealth by their late 30s or 40s seem to be those who took on a lot debt in 20s and invested heavily in education, like student loan debt , graduate degrees, and mortgages.
-
Students can take advantage of low interest rates with federal loans despite having no credit history, which is not possible with private debt. Also, tons of forgiveness plans and forbearance. This creates an incentive to take on debt.
-
In the job market, not having a degree puts one at an obvious disadvantage compared to degree holders. Unless everyone defects, it's disadvantageous from an individual perspective to forgo college.
-
Trade schools may not live up to hype and can be as expensive as 4-year degrees.
Rising interest rates will make this less lucrative, especially #2. On Reddit 'FIRE' subs, almost everyone who got rich over the past decade took advantage of low interest rates and surging asset prices after finishing college. But even with high interest rates and high inflation, college educated workers still fare much better. But it looks like 10+ year bond yields are crashing again. It's the same pattern of long-term rates falling like rock when even the slightest hint of economic weakness shows, or even for no reason at all. The era of 6+ % 10-year bonds like in the 80s,90s, and so, are over for good. There is too much demand from pensions and other sources buying up any long term treasury yielding 3% or more.
Jump in the discussion.
No email address required.
Notes -
This might be a personal bias, but I think there’s a problem in the debt to future earnings equation. I’ve never seen it broken down even to the median student. Which at least in my mind opens the door to making wildly optimistic assumptions. If you take a very high performing student who’s doing a very lucrative career path, sure, in a couple of years he’s paid off the loans and all is well. But I’m not entirely convinced that this is true for anyone below the median student.
If you’re a middling student at a Nowheresberg University, then your job prospects are much different. They aren’t getting the top openings or the high wages. They might even have chosen a lesser major and thus graduate with minimal qualifications for good jobs. In that case, they’re probably only getting a small “college bump” in the sense that it allows them to start above the absolute bottom. They would make less than 70K.
I mean…you can look up the median wage for college grads, and the median debt for college grads. IDK…I’m thinking Joe College graduated with a 3.0 from Directional State in History or something like that.
More options
Context Copy link
More options
Context Copy link