Higher Education Debt: Is It Truly Good Debt?

-- By CharlesRoper - 17 Feb 2016

The Problem

From the very beginning of life for Millennials they have been set on one track, the pursuit of higher education. Always being told and never allowed to question, that higher education is an investment in their future and that any debt incurred achieving higher education is good debt. This proposition is most evident by the Governmental guarantees that ensure the obscene tuition costs will be funded. The premise behind good debt is that it is an investment and although you may owe money, at the end of the day it is really putting money back in your pocket, usually through higher returns.

Undergraduate Debt

The first step of higher education Millenials are herded into is that of undergraduate university. While attending university the typical student incurs a debt of nearly 30,000 dollars. See Average Student Loan Debt Approaches $30,000. Upon graduation, after the institutions have their money, Millennials soon realize that the job they think or more likely are told they want in order to truly be successful in life requires much more than the typical bachelors degree.

Graduate Debt

So Millennials continue down the only path they have known since birth and seek out even higher education though graduate schools. With one quarter facing “good” debt over 100,000 dollars and one out of ten incurring over 150,000 dollars; all in addition to their undergraduate loans. See How Much Loan Debt is From Grad Students? More Than You Think. The meaninglessly high debt incursion is extremely prevalent for Millennials seeking law and medical degrees.

Is the Incursion of Debt Avoidable?

The incursion of debt to fund higher education is avoidable. However, in the eyes of Millennials, avoiding the "good" debt of higher education is not worth the cost of the last few years of their youths.

How is the Debt Avoidable

For undergraduate school, working as many hours as possible during the school year is the most notable way to avoid taking on debt. While in undergrad most Millennials take on full time work during the summer and winter break. However, they are left taking minimum wage position since the current job market is only hiring individuals with at least bachelor degrees. These positions only offer undergraduate candidates with the possibility of making a small dent in the tuition costs. So in order to go through undergrad debt free they must work, still in the minimum wage positions, as many hours as they can while still being able to perform academically.

Unfortunately, for graduate school the incursion of debt is virtually unavoidable since working during school is less of a possibility and tuition is drastically higher. Not only is working during the school year less of a possibility because of the academic pressure, but some programs even bar it. For example until recently the American Bar Association limited 1L’s to only being able to work 20 hours a week. (See ABA’s New Standards, where the ABA lifted this restriction but made clear that law schools may still fully limit the ability of 1L’s to work)

The Downsides of Working to Avoid Debt

There are two main downsides of working to avoid debt, the trading of one’s youth and the lack of ability to gain job experience. Undergraduate university and the summer and winter breaks that come with it are the last moments of one’s youth. Many Millennials, as evident by the vast incursion of debt amongst them, highly value living out their youths over paying tuition through work, especially when they can just take out "good" debt to do so. If an undergraduate decides its worth trading his or her youth they are then faced with deciding between a minimum wage job that will slowly help them avoid incurring debt or an unpaid internship that could provide valuable work experience and lead to gainful employment upon graduation. Again it is likely that many will choose the latter since its just "good" debt that they are incurring.

The Ramifications of Incurring Higher Education Debt

Even with the nauseating loan amounts many are quick to rise to defend the concept of higher education being “good” debt, which is why Millennials are not as hesitant about being able to finish living out their youths and incurring it. However, there are clear ramifications to incurring this “good” debt, which reveal how devastating it really can be.

Economic Strain

The lack of savings kills the economy. Instead of being able to use the potential increase in salary from the “good” debt of student loans to further invest in the economy, either through mortgages and home improvements or savvy stock market investments, the majority is forced to use any gain in paying off the student debt.

No Mortgages

Since graduates are crippled with student loans; even if they are able to secure a job, a large percentage of their income goes directly to the monthly loan payments. The loan payments on top of rent and other living expenses and necessities prevent recent graduates the ability to form any type of savings. With out a savings the Millennials have no opportunities to secure a mortgage, an actual good debt, and are forced to continue to throw away their income on rent and loan payments.

Pigeonholed

With the large debt looming over recent graduates, many are desperate to find any job that will provide them with the ability to make the monthly payments. Upon successfully finding a job many soon realize that their debt ball and chains them to the job, through the ever looming monthly payments.

Kills Creativity

The pigeonholing phenomenon that the “good” debt of higher education causes reaps in the death of creativity. While it may easily be argued creativity was dealt a crippling blow years before the Millennials’ debt actualized, the monthly loan payments dealt a final blow to the straw man that was left. Instead of dreaming of what more is to come, Millennials now crave the safe certainty their jobs provide all because of the “good” debt they had graciously accepted just years before.

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