As I was progressing through high school, I was told repeatedly that the point of going to college was to prepare myself to join the workforce and to give myself a head start in life. It made perfect sense to me at the time, and I still think it is good advice. But I had missed the essence of the advice. It wasn't necessarily what courses I took or what grades I got that would give me that head start. Sure, these things are important and are going to be used as a metric for evaluation in the future. But preparing for the workforce? The head start in life? That was from living through the experience: having to learn things that were so new that every sentence seemed like gibberish, or learning that failure is part of the process of growing. However, this experience comes with a pretty high cost, and it is up to those who choose to go to college to make sure that we minimize our future income risk while we increase our human capital.
Coming into college, I did not have a lot of money to throw around. I had gotten enough money from the school to pay for the tuition and some of the housing costs of living at the dorms, which was mandatory for freshman. As a result, I had to take out loans to pay for the rest of the dorms as well as books and other incidentals, which totaled several thousand dollars in loans. The following year, my scholarships from the university were reduced, and so I had to take out even more loans as well as pick up a part-time job. This is when I started to really contemplate the long-term costs of going to college. At this rate, if I didn't start really excelling in my classes and networking like crazy, it might not have been worth coming here.
In order to try to minimize the debt that I was accumulating, I would work full time over the summer and save up money that I could use throughout the school year. I would then keep a part-time job during the semester to also lessen my loan burden. For every dollar that I could save up over the summer, I would save more than a dollar in interest by not taking it out in loans. In addition, I would get jobs at companies that would look good on my resume so that I could network as well as save up money for school. For example, I was an office assistant at a law firm for 3 summers. The pay was about average, but I was able to network with professionals in my field as well as having the benefit of having a law firm on my resume.
As far as older relatives go, I have a cousin that is 6 years older than me and took a similar path: graduated high school, then went to college for 4 years using loans and working part-time. She was okay with her debt upon graduation and for a few years afterwards. However, she ran into trouble about 5 years out of graduation when she bought a car, new furniture, and got a new apartment all within the same year. This put more strain on her than she thought it would and as a result, she had to work a second job, all but sacrificing the sacred "mid-twenties" social life. I will definitely keep this in mind post-graduation as complacency seems to blame here.
Let me divide my comments into two parts. The first concerns only the pecuniary (financial) returns to college The second concerns other returns that can't be measured by your future earnings.
ReplyDeleteYou said some things that are economically wrong in your last sentence of the second paragraph, so I want to react to that. A big issue to consider is the road not taken and if there are multiple alternatives for those, which would be the best alternative. Would it be not going to college at all? Would it be working and going to college part time? Would it have been going to community college for the first two years to lessen the tuition burden and going to the U of I starting as a junior?
If you figure out the best alternative and you compare the future earnings from that as compared to the future earnings from what you actually did, you can then determine whether the extract costs in what you did were worth it or not. You can't possibly figure that out, however, until you've got a reasonable basis for what your future earnings will be.
The uncertainty is clearly greater in the future earnings than it is in the current expenditure on college. But even with piling up a significant amount of debt, that can be completely rational if the future earnings warrant doing so.
Also, unfortunately, the macro economy has not performed all that well while you've been in college and that matters for your future earnings. It has been performing a bit better as of late, but there is a lot of uncertainty in whether additional improvement will happen or not. Your college investment would prove more sensible if the unemployment rate were lower and if the labor market were tighter for the next few years. Let's hope for that, though as I said, it is highly uncertain.
Let me turn to the non-pecuniary return to college or, alternatively, why every college student should have a strong background in the liberal arts and thereby develop good critical thinking skills and a strong ability to communicate well. This has value for your own enjoyment of life, for you to be a better citizen in your community, and if you ultimately have a family to be a better parent. Those benefits can be strong even if the narrow economic argument for college at the U of I is not quite as strong, because of the labor market weakness I mentioned. So you do want to get a "total income" calculation in thinking about the question, and not just limit it to a narrow financial calculation. If you can't afford to eat or to have decent shelter, the narrow calculation is more relevant. If you generate enough income to manage the bare necessities, the other considerations take on more relevance.