Old rule: Student loan debt is always “good debt.”
Money gurus decree that there’s good debt and bad debt, and the difference is that good debt is an investment. And it’s true that a college degree will generally lead to higher earnings than a high-school diploma alone. But “one pervasive myth that has landed many well-intentioned people in major debt is that all student loan debt is ‘good’ debt, rather than judiciously weighing the costs and benefits of a degree program,” says Kristi DePaul, CEO of Founders Marketing, a firm that works with think tanks, universities, education non-profits and foundations, and edtech startups. In reality, the debt that comes with higher education isn’t always necessarily a good thing to take on.
New rule: Calculate the ROI of your degree.
With the cost of education on the rise, today’s student has to think longer and harder about the return on investment of their degree.
“There are many practical reasons to rethink what is now often a six-figure higher-ed investment,” DePaul says. “Today’s educational landscape is evolving away from the traditional. The elite brands that once stood for success in specific fields must now compete with a new outcrop of alternative credentials like digital badges and nanodegrees,” or online programs that can teach you specific skills. (Some employers accept them, but others may not be familiar with them, according to a report from U.S. News.)
While this type of education hasn’t replaced the four-year degree, it’s true that many major employers like Google and Apple are overlooking the bachelor’s degree as a standard requirement for a job. And the value of a college diploma has plateaued over the past several years; while the wage gap between the average high-school graduate and the average college graduate is still significant, it’s no longer growing the way it did in decades past.
This isn’t to say you shouldn’t pursue an expensive name-brand college education or go to grad school. But crunch the numbers, and be open to other paths. As Josh Kaufman, author of The Personal MBA, put it in the blog I Will Teach You to Be Rich, “Taking on loans to finance a credential can make becoming a successful person more difficult than it really needs to be.”
Kaufman suggests a sensible alternative: Consider whether the industry you’re planning to enter cares more about skills and experience than it does a college credential. Also, consider the cost of a brand-name school versus a (likely much cheaper) state or community college. Look at a school’s website to find its job placement rates: How many grads find jobs right after college, and what are their salaries? Beware of for-profit colleges, which have gotten in trouble for misreporting these statistics. And by all means, if you’re going to school with a plan to “find yourself” or take a break from the workforce, think twice about the price tag that comes with that. Unfortunately, today’s student has to think more about the money.