Conventional economic wisdom concerning student loans follows a fairly straightforward logic. If you stand to make over the course of your professional career more than you'll pay for the education that gets you the career, then it makes sense to go ahead and make that investment.
Most university aspirants, however, lack the ready cash necessary to make that investment and must therefore borrow it. But with the ever-escalating tuition and fees colleges and universities charge these days, and with dwindling grant amounts and tougher federal loan terms, this once simple economic calculation has become considerably more complicated.
The U.S. economy has not shown itself terribly accommodating. Newly minted college graduates have had a tough time finding entry-level positions (the unemployment rate for this cohort hovers around 5.1 percent). And should they manage to win a position, they must confront the sad truth that wages and salaries in the U.S. have remained stagnant over the past four decades (if indeed they have not actually declined).
People aspiring to the professional ranks must come to terms with one glaring economic truth: They must learn more to earn less than their counterparts in earlier generations. Often, employers demand from applicants a master's degree for positions for which in years past a bachelor's degree sufficed. For the applicant this means a few years of additional schooling, the cost of which she'll have to recover from a job that pays about the same -- or less -- than when a bachelor's degree holder filled it.
Finding themselves behind the vocational eight ball, many young people have begun to seriously reconsider the wisdom of borrowing money to cover college costs. After all, a compound interest rate indicates how long it takes the principal amount to double. These young people realize that by the time they have retired their loan, they will have paid double -- or in many cases nearly triple -- what they borrowed.
This scenario also boils down to a set of straightforward conditions. These young people have asked themselves, "When I finish college I will have borrowed $80,000, which by the time I pay it off will have become $160,000 or more -- will I over the course of my career realize something satisfactorily beyond this $160,000 I must repay?"
Such a tough question appears to have prompted a March 28, 2011 DailyFinance.com piece. The piece's title, "Are Young People Too Afraid of Student Loans?," sets up the answer provided in the article proper: Young people aren't afraid enough of them.
The piece takes exception to claims made in a recently published book Not Quite Adults: Why 20-Somethings Are Choosing a Slower Path to Adulthood, and Why It's Good for Everyone. These claims help the authors to assemble a case for continued borrowing. Yes, tuition and fees at most universities have skyrocketed, and, yes, financial aid has become tougher to get at favorable terms (grants, extremely low interest, deferred interest accrual), but, the authors contend, the benefits still outweigh the drawbacks. In other words, these authors seem to say, "Your white-collared existence, though it won't be as remunerative or stable for you as it was for those who preceded you, it will be more remunerative than the alternative."
These claims have some merit. Yet they reflect the larger problem confronting the U.S. economy: namely, the ever more exorbitant premium placed on buying your way into the middle class. Relatively speaking, borrowing for college makes as much sense as ever. When compared with levels of prosperity people enjoyed in the past, however, the whole college-finance issue seems like a Hobson's choice -- one with massive personal implications. This explains the allergy to student loans apparent in the DailyFinance piece. Little wonder, then, that the piece's writer, Zac Bissonette, dismisses the pro-student loan argument made in Not Quite Adults as "crazy."