In reading my local paper a few weeks ago, I was reminded by how it seems harder and harder to get ahead financially today. Our local newspaper ran a story about a few college graduates with staggering student loans who were having a hard time living with a basic entry level salary and repaying their debt.
A few months ago, I wrote an article on what is good debt and bad debt. In the article, I pointed out the faulty logic that college debt is good debt because it was an investment that should payoff down the road. This is faulty analysis because we put debt and investing into one bucket. The difference between good debt and bad debt is not the reason for the loan rather two key factors (i) interest rate paid and (ii) ability to pay off the loan. The reason to go to school is partially due to its investment potential and partially because a student wants to do it. A good investment is based on the money we put in to it compared to the return we get back. A student loan can be a good investment yet as we will see a bad debt (too large to pay back easily).
The article looks at a few students who had $80,000 to $100,000+ in loans to attend a private college. Due to having private loans with higher interest rates, they ended up paying back over $1,000 a month. When the average entry level salaries are only $14,000 better than a high school graduate, it becomes difficult to pay back the student loans. It is true that a college graduate can earn over $1 million more compared to a high school graduate. Yet, our drive for money has made us go after bad debt in the goal to make money.
We have incorrectly put a value on a college education that is not there. We pursue it without regards to how we may be able to pay it back. Even though I am a big proponent of a college education, I believe that we have tied to a piece of paper to a degree to our self-worth. When we believe a piece of paper can make us rich, we have given up our self-worth over to money (piece of paper is more valuable than we are). In this pursuit, we make bad decisions (taking on too much debt) to try to achieve a piece of paper that has no value.
In listening to a radio program the other day, a caller asked about what to do with her life. She had recently received a job running a new not-for-profit for teens in Mexico with an unlimited budget. Yet, she felt that she was drawn to go back to school to get her degree at age 40. When asked why she needed a degree, she responded that a degree is what is expected by society.
Here is a woman who was very competent in what she did with years of experience in the field (learning by doing). Yet, she was letting a piece of paper determine her self-worth or lack there of. It was not like she had no opportunities to do what she loved. She could have turned down this opportunity and spent $100,000 for a piece of paper, yet she would have ended up with a debt that she would have continued to pay off in retirement.
The point is when we try to look outside ourselves for worth (in a piece of paper), we end up being poor (paying off debt forever). I am not saying to not pursue a college education. Yet, what makes a piece of paper that is printed at one college more valuable than another? For some people, a MBA at Wharton may be more valuable if they if they want to be an investment banker (Wharton gets them in the door). Yet, 20 years later, the difference in the piece of paper becomes obsolete because one’s true worth is what is inside him and not in a piece of paper.
By seeing our worth, we can make more informed decisions. Instead of going after the private elite schools to try to distinguish ourselves, we can go after a public school and distinguish ourselves through our actions. I have had friends do quite well in life without a college education because they had great self-worth. One friend dropped out of school because his business got too demanding for him to do both. A college education does get you in the door, yet it is up to you (and your self-worth) to walk through it.