Student loans: a good investment

Conventional wisdom is that college educated Millennials are being crushed by student loans. A burden that will weigh them down economically for a lifetime. Its nonsense.

Using data from The, Business Insider demonstrates the value of a four year degree or more, even if it includes student loans. They conclude: “Student loan debt is obviously a concern. On average, today’s students graduate with $28,000 in debt. Average tuition per year is above $21,000.  But for all of the near term hardship, college is very clearly the right long term investment. And for those recent graduates thinking about graduate school, the initial debt load might be higher, but the long term payoffs are even bigger.” (Emphasis added.)

For those interested in a more detailed analysis of the value of investing in a college degree I highly recommend the Hamilton Project (at the Brookings Institution) report entitled Where is the best place to invest $102,000 –– stocks, bonds or a college degree?

Let me be clear, we think that tuition should be lower. We have argued for years that state disinvestment in higher education –– particularly in Michigan for more than a decade –– is not smart. It is the prime cause of tuition going up.  As universities are forced to charge students the costs that have traditionally paid for by state funding. The connection between state support for higher education and tuition is explained well by Catherine Rampell of the New York Times in this Economix blog. Rampell writes:

There’s a lot of debate about why college costs have risen so much. Many people assume that schools are spending too much money on frivolous things like climbing walls and Jacuzzis. That’s true for a handful of elite schools, but not for a vast majority. Some of the rising cost has to do with other services schools have been adding over the last few decades, like mental health counselors and emergency alert systems. And certainly there are other inefficiencies that have crept into the system as higher education has become more things to more people. But at least at public colleges and universities — which enroll three out of every four American college students — the main cause of tuition growth has been huge state funding cuts.

But until and unless public policy changes, student loans are going to be a important part of how college is financed. And we need to portray it accurately: it is a good –– probably the best –– long term investment. As the Business Insider article makes clear it has huge and growing payoffs over a career. The data are clear: rather than a crushing burden and/or an unfair cost imposed on college students, students loans are a good investment that leads to much higher future earnings.

One area where public policy has been moving in the right direction is in now providing the ability to finance college loans as a proportion of your earnings. Bloomberg Businessweek explored this kind of loan in an article entitled: The U.S. Has a Really Helpful Student Loan Repayment Program—and No One’s Using It. Its a way to make taking out college loans an even better long term investment.


Print Friendly, PDF & Email

Social Links

Featured Video

Play Video

Newsletter Signup

* indicates required

Latest Reports

Recent Posts