When I was 18 I foolishly signed up for student loans without thinking about it. I thought, “Everyone does it.” That’s a pretty bad attitude. That kind of attitude will get you driving a minivan on a 50-mile daily round trip to a cubicle which you’ll grow to loathe. There will be just enough money to pay your bills and IF there’s anything left over, you’ll be pressured into spending it just to impress people you don’t like. Don’t be that person. Luckily, signing up for my first student loan without thinking about it was pretty much the end of my mistakes when it came to loans. I encourage you too to stop the natural progression of things by first questioning if you should take out student loans or not.
I don’t use the term ‘investment’ lightly. I’m not the kind of person who rationalizes their spending by calling everything an investment… “Those shoes are an investment in my date tonight!” Or… “Investing in this fresh juice blender will be just the $300 item I need to lose weight.” It’s madness the way people throw around that term! I take it seriously when I call a student loan an investment.
What makes a student loan an investment?
The point of an investment is to spend money in order to make more money. Essentially. So with a student loan, you’re able to spend money getting an education. That education will get you a job that pays much more than you would earn with just a high school diploma. Let’s do some quick “back of the napkin” math here…
With just a high school education, let’s say you would earn $35,000 per year.
With a bachelor’s degree you could expect around $65,000 per year (depending on other variables, of course).
Here’s what you also have to keep in mind:
- It will eat up 4 years of your young life to get said degree. This means a massive loss in opportunity. Not only do you not earn a respectable income while in college, you also can’t save any serious money which you could be investing. Instead of attending college, you could save $10,000 per year from your job (if you’re disciplined). That would be $40,000 saved while your friends are sitting in a college library. $40,000 compounded at 8% will be $2,363,301.30 at the time you retire at about age 73. I don’t know about you, but that’s some serious coin to me.
There’s no guarantee you’ll make more money with a degree.Entrepreneurship aside, you will make more money with a college degree.
- You will likely have to pay interest on your student loans – about 4.66%.
So on the face of it, student loans look like a fairly bad deal. But let’s look deeper at the numbers…
When you earn that extra $30,000 per year upon graduation, it will not take you long to pass your high school counterparts in savings. At the same savings rate of 7% (which is low, mind you) you will bypass them quickly. You’ll be able to save an extra $2100 per year. Instead of saving $2450, you’ll save $4550. That’s a big difference.
On top of all this, you’ll have learned a lot in college. You will have acquired knowledge, skills, and information which will help you be a better adult. This means you’ll probably be more responsible with money than those who didn’t go to college.
Should you get a loan?
That’s up to you. But if it’s a matter of going without a degree or getting a student loan – the math shows you should DEFINITELY get a student loan. And let’s look at the more emotional aspect of education for a moment. I know some very successful people who did not go to college. They do great and seem to enjoy life. But I’ve seen each one of them show jealousy toward those with more education. I’ve seen them get defensive when someone brings up college. They start joking about it, but I can tell they are hurting because they can’t join the conversation. So I encourage you to go to college. Even if it wouldn’t be a wise investment. You can still be successful without a degree but I don’t want you to regret not having one.
As we move through this series of student loan articles, I’ll discuss much, much more about what it takes to be responsible with loans. Basically, everything you will need to know. Just keep reading this column each week. If you’re in a rush to learn about something new, message me and I’ll either talk with you 1:1 or I’ll boost that topic higher in post priority.
Thank you for reading this introduction to student loans. I’ll talk to you next week.