The Risk/Reward of Student Debt
The political posturing in regards to America's student loan debt (estimated at from $850 billion to upwards of $1 trillion) is escalating. President Obama recently spent a week traveling from one college campus to the next, declaring his compassion for college students and his deep concern for the debt they had incurred funding their education.
Obama, and a number of Republicans, are leery of a reset in the interest rate on many of these loans from 3.4% to 6.8% on July 1. Whichever political party deemed responsible for a rise in the rate and a corresponding rise in the students' payments would surely lose some votes on Election Day.
Images abound of these students at protests with signs around their necks showing the dollar amount of how much they owe in student debt. Some of those striking numbers are in the tens or even hundreds of thousands of dollars.
While the debate rages as to freezing interest rates at 3.4% and, if we do that, how to make up for the government's lost revenue, there's a more fundamental matter that isn't being addressed.
The risk of incurring debt to fund college and the amount of that debt is a calculated choice by the student. He or she takes the risk, believing that an education will provide the knowledge necessary to acquire a job that will pay off the debt in a timely manner.
In sharp contrast with political talk and protests on the issue, a student has a number of ways in which he or she can attend college and have zero dollars in debt upon graduation. I did it and acquired a bachelor's and master's degree without one red cent of debt.
The most obvious way to attend college without incurring debt is to collect one or more scholarships or grants that cover tuition and/or room and board. Few students, of course, qualify for such scholarships (academic or athletic, or some combination thereof), but some do receive them. I was not one of these.
Then there are those who may have a combination of scholarships and grants and also work while in school. I was one of these. I worked full-time during some of my undergraduate years and 20 hours per week in graduate school, with the 20 hours per week in graduate school being an assistantship that also paid for tuition.
I didn't want any debt from college. So I chose to attend a state school relatively close to my home, thus eliminating the cost of room and board, and spent some time in junior college to make my education even less costly. Of course, those classes at the junior college were the exact same that others were taking at the university at four or five times the cost. So, with a little planning, hard work, and dedication, I managed to graduate debt-free with a bachelor's and master's degree in five and a half years.
Now, the flip-side. Suppose someone -- let's call him "Barack" -- is accepted into an elite private school that costs $40,000 per year for tuition and room and board. Let's say he gets $10,000/year in scholarship money to coax him into going there. Barack then justifies in his own mind that he doesn't have time to get a job while at the school because the classes are so difficult. So, this hypothetical student graduates with his private school bachelor's degree and also $120,000 in student debt.
Let's say Barack and I both graduate with similar degrees and roughly the same grade-point average and that the school we each attended is held in high esteem for our chosen area of study. Between the two of us, all other factors equal, who is the more attractive candidate for a job? Is it Barack, who has the private-school degree and zero work experience, or is it I, who worked full-time and graduated on time with the same degree as Barack?
Assume, instead, that our hypothetical student Barack decides to pursue a degree in ceramics at the same institution instead of another degree that can be expected to be in high job demand upon graduation. Again, he has $120,000 in debt but now works at the local 7-11 because there are few if any job openings for ceramic-makers.
Now, look at the student loan protesters with the signs around their necks showing how much they owe in student debt. Some are certainly legitimate. But how many could have taken a different path by perhaps choosing a less expensive school, working during school, having sought out scholarships and grants to a greater degree, etc.?
There were temptations, when I was in school, to forgo financial frugality and instead take out some student loans and just wrap myself up in the college experience. I could have done that and, like these protestors, had thousands upon thousands of dollars in student loan debt. I had choices, as did many of those asking for help with their student loan debts.
Taking on debt to attend college is a calculated risk -- a risk borne by the student and the student alone. The government has no responsibility to eliminate that risk.
Chad Stafko is a writer and political consultant living in the Midwest. He can be reached at email@example.com.