Kyle Prevost, with his co-writer Justin Bouchard, has been trying to make fiscal life a bit easier for students across the world with their website My University Money. Kyle was kind enough to sit down with us and discuss student debt, paying it off and when it's a good investment.
How much of a problem is student debt?
What most people in society haven't caught on to yet is that student debt isn't just a massive problem for young graduates - it's going to becoming a pretty big deal for society at large as well. We're seeing more and more students default on their student loans, for larger and larger amounts, and we're going to see a generation that is going to be a real drag on our consumer economy. Student debt loads are going to meet late entries into the housing market, more consumption of public transportation as opposed to personal vehicle shopping and lower fertility rates. There doesn't seem to be a whole lot of sympathy at large for students from the rest of society, and I'm not sure that's justified. A lot of these young students made high-risk decisions without anywhere near an appropriate amount of guidance and information to draw upon.
What are some common student debt mistakes you see, and why do people make them?
The classic student debt mistake is to get your student loan check deposited into your bank account and then proceed to spend to half of it in the first two weeks of the semester. It really isn't a mystery why this happens when you think about the fact that money is a more taboo topic than sex is at both the dinner table and in schools these days. Students who have never seen that much money before and have absolutely no clue how to budget for a prolonged period such as a school year are suddenly given cart blanche with thousands of dollars and no one to tell them what to do with it. The same principles apply to students that get their first credit cards.
We all know the old joke about the $100,000 fine arts degree, but how true is it in practice? What value should we put on a degree?
The interesting thing about this stereotype is that it needs to be expanded to include much more than fine arts. Go ahead and look at the employment levels for almost any humanities-related degree. Those employment levels get extra discouraging when you drill down further into the statistics and look at how many of those that are employed are underemployed or are working in fields completely unrelated to their degree. It's to the point now where I would argue the only "safe" paths of employment if your goal is to graduate into an in-demand field are something in the health field or a specialized STEM degree. If you don't believe me, go ahead and ask any young teachers, architects or most lawyers what their current job prospects are given how little leverage they have in our supply-and-demand economy.
Putting value on a degree is quite difficult, and post-secondary institutions do a fantastic job of spinning this debate in their favor. I believe it all comes down to your own personal goals of attending university or college. If your goal is simply to have an enriching experience while avoiding the nine-to-five grind of the working world for a few years, then the degree is hard to value. I think given the rising costs associated with degrees at this point, more lower- and middle-class families need to think about the value of a degree in terms of the probability it will increase future earnings and career advancement. We can't keep blindly allowing young people to cripple themselves with massive debt loads and terrible career prospects.
Before taking out a student loan, what questions should the student (and their cosigner) have answers to?
I personally believe that students and their cosigners should know why they are pursuing the education they are and be making an informed decision about going into debt in order to pursue it. Going to school for the sheer joy of learning and the "intangible benefits" that post-secondary institutions are always talking about is fine if you can afford that luxury, but if you truly can't afford it, is that really a luxury you want? Is it really a luxury that can't be gotten through a free online course or with a library pass and a book club? If that luxury of having a post-secondary experience where you learn and engage with people that share your intellectual interests mean the world to you, then it could certainly be worth taking out the debt - but then let's see the purchase for what it is - the purchase of a luxury good and NOT an investment.
If you're taking out debt in the hopes that the post-secondary credential will help your earning power and advance your career, then that's a different story, right? Then the debt truly does become an investment and not simply a purchase of a luxury. At that point, one needs to look at and think about the money as in an investment. What will the return on investment for that money be? You should know the market outcomes and associated opportunities or lack thereof for your proposed path of study before making a substantial financial commitment through a student loan.
What trends in student borrowing should we be keeping an eye on?
One trend in student borrowing I'm very interested in is how much more students who live in rural areas have to pay for school relative to their urban counterparts. If you have to pay for living costs while you're attending school, a 5% raise in tuition is the least of your financial worries. Is it systemically fair that rural students face such a disincentive to go to school? Is the proximity to major post-secondary institutions something that urban people have already paid for through property values and generally higher tax burdens? I don't know those answers, but I do know that rural parents had better be aware of the costs their child will incur while living on-campus or off-campus, because they are substantially more than having a student go to school full time while living at home. Obviously rural students aren't the only ones who go away for school, but they are the only ones that don't have a choice to cut down on costs by living in the basement for a couple more years.