13 thoughts on “FEE: The Price of Repaying Student Loans for 10 Years Instead of Investing

  1. This analysis makes a very compelling case for young people to eschew advanced education. It is less and less rational for them to do so all the time.

    I have personal knowledge of this situation. My second daughter was admitted to just about the most prestigious school of veterinary medicine in the world. She happens to be very talented and interested in the field and has even co-authored a scientific paper presented at a technical gathering of veterinarians. But, she did the math and compared her earnings with and without that degree versus the roughly $400,000 in debt she would incur and decided to forego. It simply did not make economic sense. When I offered to pay, she refused for the same reason – it did not make economic sense.

    My impression is that she is not alone. It seems that many talented young people do the same math in fields requiring advanced education. This trend raises the question – if we make it irrational for someone to prepare for such fields, where will the people needed come from? Those who cannot do the math? Or only the wealthy?

    In short, it is irrational to continue to make education a bad economic choice which is why we need to make it more affordable as most of the Democratic candidates are putting front and center.

    Liked by 1 person

  2. That $1,000,000 cited is cool, but the lifetime earnings of a college grad versus a high school grad is around $1,000,000 more. Kind of breakeven, except for the worklife quality.

    What happened between 1970 and 2010?

    In 1970, a person earning minimum wage (and working additional hours in the summer) COULD attend a State university for 4 years and graduate debt-free*.

    Aside from the fact that minimum wage has not held with inflation and the tax-support for State colleges has dropped to almost non-existent forcing tuition way up, I cannot imagine what happened.

    But, let’s take that $30,000 in debt and assume that all else is equal**. Further, assume that a person works 25hr/week at minimum wage for 8 months, and 60hr/wk for 4 months. 2,080 hrs is a normal work-year, and our “student” works 1,860. Gotta have a little time to study.

    How much more would minimum wage have to be to cover that $30,000? Gee, about $4/hr more or $11.50/hr. Hmmm, I see a solution and if I’m not mistaken, isn’t that pretty close to the increase that’s been proposed?

    specifically $100 in a savings account and $40 debt on a credit card; I bought my soon-to-be first wife a dress for my graduation.

    ** we’d have to bring back the meaning of a “State school” too.

    Liked by 1 person

    1. The writer computes the opportunity cost as a comparison between loan repayment and an equivalent investment after the student earns the degree. The value of the degree itself is not a factor for this reason.

      Still, I think you’re right that a person might consider the value of the degree when considering whether to borrow to go to school. In that case, the opportunity cost of the loan becomes a significant consideration.


      1. It’s much more complicated.
        Like you said, you have to compute the cost of NOT receiving a degree too.
        $1,000,000/40years/2080hrs is $12/hr more than the HS-equivalent counterpart.
        That’s a lot of steak and economic security.

        Liked by 1 person

      2. BTW, back in the late 70’s National Lampoon ran a joke piece about two guys taking student loans. One uses the money for school and the other parties and uses some for seed money.
        Of course the obvious punchline line was the guy who went to school spends years paying off the debt, gets divorced because of financial stress, etc., etc., whereas the other makes the weird investments (antique clocks, artwork, all carefully researched by the author for enormous profit in days) and winds up living the the apartment above Warren Buffet.

        Liked by 1 person

  3. OK, here’s a thought experiment for you.

    Currently, you can get a loan to buy a boat from a bank, subject to the banks qualification process and a lien on the boat.

    Now, assume the government takes over the boat loan process.

    Anybody can get a boat loan, even with no or poor credit.

    Anybody can get a loan for any kind or size boat. You can get a loan for an ocean going yacht even though you live in Utah and there is no place to use it.

    You can buy the boat from any seller at his asking price, even if one sells the exact same boat for 5 times what another dealer sells the same boat for.

    There is no lien on the boat, it can’t be repossessed if you don’t pay the loan.

    No matter how much you owe, the payments are limited to a small percentage of your income.

    Now, what happens to the demand for, and thus the price of, boats?


    1. @Tabor

      Other leading countries have solved the “problem” you think you see. Places at University are allocated based on ability instead of money. It can be quite brutal and competitive and the winnowing starts pretty early but it works. Thanks to our system of rationing based on money instead of talent, we are falling behind almost every other advanced country.

      Liked by 2 people

      1. It is quite true that in other places where college is “free” or heavily subsidized, assignments are merit based, and the number allowed to pursue a given degree is controlled to match demand.

        But that would be seen as discriminatory here. We are trying to make it both “free” and universally available without limits.

        We will loan money for 100 people to study psychology for every available position and the universities will provide the opennings as long as the loan mney shows up.


        1. @Tabor

          “But that would be seen as discriminatory here.”

          Uh, no. Admission to colleges is already very competitive. In some states the Valedictorian of each high school is offered a free ride at the state university. I have never heard anyone call that “discriminatory.”

          “We are trying to make it both “free” and universally available without limits.”
          Who is we? Who says that it would be “without limits.” That seems to be a straw man you have put up to be punched about.

          Liked by 2 people

  4. Paying off student debt versus investing. Hmmm. How about this: Invest in a state sponsored 529 plan. BEFORE college becomes an issue. It can be used for a trade school, community college or a four year (does anyone finish college in 4 years any more?) college or university. Plan and get ahead of the game. Lower the amount of aid needed. Lower the amount of debt after school is completed.

    Just a thought based on the fact I wish we could have done that for our kids and grateful we are in a position to do so for our grand kids.


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