To keep college debt to a minimum, don’t think of it as a surefire investment
Let’s see, there was the tech bubble in the mid- to late-1990s that eventually busted a lot of people financially. We’re suffering right now because the housing bubble burst. And what’s the next bubble?
Let’s call it College at Any Cost. Bubbles happen when assets — stocks, for example — have inflated values. The bubble will bust when there is a great discrepancy between the inflated price of the asset and its real worth.
Don’t we have that right now with the thousands of college graduates who have paid heavily for their educations with debt and now can’t find jobs that pay enough to service the debt without stretching the loans out for decades?
Last year, there was record unemployment of 8.7 percent for college graduates ages 20 to 24, according to a new report from the Project on Student Debt. Students who graduated in 2009 carried an average of $24,000 in student loan debt, up 6 percent from the year before.
Borrowing through federal loans increased by 14 percent, the College Board reported. When federal loans aren’t enough, students often turn to private loans, and these come at a higher cost.
Generally, a college education does lead to greater employment opportunities, plenty of data show. But there’s a point where the amount of debt accumulated is too much to handle for college graduates starting out.
The answer to this problem isn’t to discourage people from attending college but to challenge them to go with no debt or as little as possible, argues Zac Bissonnette in his book “Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships or Mooching Off My Parents’’ ($16).
I’ve chosen “Debt-Free U’’ for the Color of Money Book Club Selection for November. Bissonnette is a senior at the University of Massachusetts. The cost of his education will come to $60,000. When he graduated from high school, he had already saved about $35,000. He made up the difference by working his way through school.
His book is no vanity project meant to berate people who take out student loans. Instead, Bissonnette lays out a blueprint that students and parents can use to avoid future financial heartache.
Key to Bissonnette’s advice is really a mind change. Rethink the advice that a student loan is a sure-thing investment. Resist the societal pressure to have the traditional college experience. That might mean starting out at a community college, for example.
As he writes: “Look at college as a rational investment, not a coming-of-age ritual where money is no object.’’ On college debt as an investment, he says: “Any reasonable intelligent investor will tell you that the worthiness of an investment depends on two factors: the cost of the investment and the return.’’
This is a well-researched book that strives to debunk a lot of myths. Best of all, the guidance comes from a young man taking his own advice.
Michelle Singletary is a columnist for The Washington Post.