College Loans: Is Borrowing Worth It?

Today's guest post is from Jon Boeckenstedt, vice president for Enrollment Policy & Planning at DePaul University, who has a gift for cutting to the chase whether he's writing about testing, college tours, or tuition. Here is his take on the value of a college degree and how a student may want to think about borrowing to obtain that education: 

It has long been believed that attending college paid back financially and with a better quality of life in general.

Then we had a little economic calamity in this country, and people aren’t so sure any more.

Some people think we’re in the middle of “A Perfect Storm,” where several important (negative) things are happening at the same time, thus creating a crisis: College tuition keeps increasing, and often increasing faster than inflation; federal aid keeps shrinking, causing student debt to grow dramatically; and the jobs recent graduates need to pay back student debt are growing scarcer.  On top of that, problems like unemployment are even greater for people who don’t have a college degree.

Economists would say that the net present value of a college education seems to be going down, while the opportunity cost of not going to college seems to be rising.  Your grandmother would say you’re caught between a rock and hard place.  It might seem to you that you’re damned if you do, and damned if you don’t.

Amid all the bad news, is there anything good to report?  Yes.

Four out of every ten students in the US attend a college that costs less than $9,000 per year, because the overwhelming majority of college students in the US attend public universities.  Even in a worst-case scenario, it’s hard to imagine that an education at most of these institutions isn’t a) accessible, and b) very much worth it.  Even though the value of education extends well beyond a financial payoff, just a simple calculation that accounts for increased earnings over a lifetime suggests college is still, in general, a good deal.

Of course, sometimes, the best place for you might just be that higher-priced private college or university.  What if you have to spend a lot and borrow a lot to make that happen?  Should you do it?  Is it worth it? I’m going to tell you something you don’t hear very often: I really don’t know the answer to either one of those questions.  And I don’t know because I don’t know you, and because it depends on many factors in the future no one can predict.

But here is a simple way to think about it: Suppose you have to borrow $40,000 to make your dream school a reality.  If you plan to work for 40 years after you graduate from college, your investment is effectively equivalent to one mid-sized automobile over that time.  If you believe that your dream school is going to pay dividends well beyond that, then that amount—as large as it may seem now—is more reasonable.  If you’re going to go into a field that might not pay as well, that might give you pause.

If our financial crisis has taught us anything it’s that we need to be careful about borrowing money foolishly, for things we don’t really need.  Right now, it’s really hard to argue that you don’t need a college education.  But if history has taught us other things, it’s that people who go against the tide, the ones who zig when everyone else is going to zag, seem to come out on top more often.

The short lesson: Before you borrow large amounts, know yourself.  Know what you can about the future.  Don’t be afraid to make a reasonable bet on the success of both.