The previous post looked at the dangers of the notion of going to college for the primary purpose of simply getting hold of a degree (because it will supposedly make you rich) instead of actually getting an education (so that you can add greater value to society). The point was made that this notion is rapidly diluting the value of a college degree, making the widespread belief that a college degree is the road to riches increasingly untrue. This post will look at another compounding factor: cheap credit.
As always, the USA provides the best example of the dangers of artificially cheap credit. About two decades ago, the US government started to guarantee student loans, making them available and affordable to practically anyone. This sounds very nice because it gives everyone a fair chance in life, but, just like it was with unrestrained borrowing for housing, the flood of cheap credit created a bubble which has now made education ridiculously expensive. If you then factor in the dilution of the value of a degree discussed in the previous post, this really begins to look like a total rip-off. And yes, like all massive malinvestments (bubbles) this one will also end badly as more and more young people are thrown out into the real world with nothing but a rapidly depreciating piece of paper and a massive debt burden.
So, what should young people do then? Well, there is of course no fixed answer to that question, but here is my advice:
Firstly, if your primary purpose behind getting an education is that magical piece of paper that will make it rain money as soon as you graduate, forget about it. The reason for getting an education should be nothing other than the education itself and, if the type of education you are pursuing does not inspire you, you are definitely on the wrong track. In this case, it would honestly be better to switch to something that really stirs your interest or, if you cannot think of anything right now, even postpone your education for some time while you get to know yourself a little better. Life is long…
Secondly, you should really make the most of this investment. This implies that your aim should be to upgrade your body/mind as efficiently as possible so that you really will be able to add greater value to society once your education is complete. If you spend your days recovering from hangovers and watching all the TV series ever produced by humanity while your classes tick by unused, you really are squandering this very important investment. Yes, it’s good and healthy to occasionally have a few beers with some friends or watch a good movie. You can even be excused for getting completely wasted on one or two special occasions during the year, but it is vital that you keep your purpose in mind (after you have recovered the following day at least).
Thirdly, if you live in a country (like the USA) where tuition really is in a clear bubble, consider getting your education in another country. This is a lot of effort and very far outside the comfort zones of most people, but it can really give you a lot more bang for your buck. And yes, in addition to the education, you will also get some very valuable life experience.
And finally, it is highly advised that you get an education in something where you can add direct value to society (e.g. engineer, farmer, doctor or teacher) and not something where you primarily manipulate the vast streams of paper wealth sloshing around in our economy (anything in the financial sector). The enormous credit bubble we have been blowing over the past three decades has created a massive oversupply of people producing paper wealth and an equally massive undersupply of people producing real wealth. Life really is a lot more fun if your skillset falls in the undersupply category.
As usual, all of these guidelines are simply ways in which you can ensure that your student loan is an investment loan instead of a consumer loan (as discussed in a previous post). Please make sure this is the case.