The last thing you probably expected, today, was a post about how higher education is ruining the economy. After all, aren’t personal-finance bloggers supposed to be all about advancing yourself, spending wisely, and earning all that you can? Perhaps, but I’m of the personal belief that one can still advance yourself, spend wisely, and earn all that your worth without having to go to college. Before I get off on a tangent let me explain just what it is that I mean. Higher education has its place. If you want to be an engineer, a doctor, social worker, or even a teacher, you’ll likely need to have a college degree. For those professions that require a college degree there simply isn’t any other way around it. But, that doesn’t mean you need to go to a college whose tuition costs exceed several years worth of the expected salary for the profession that you wish to have. After all, the idea is to learn a profession so that we can earn more money, not learn a profession so that we can spend more money.
Higher Student Loan Debt is Burdensome.
How does all that relate to the economy? The effects of the high cost of tuition are far-reaching. The added debt of college loans can create a cyclical debt treadmill. A recently graduated student may have a small window of time to get his or her affairs in order, but is quickly saddled with a student loan payment. Newly minted professional usually work extra hours to make extra money to pay off the large student loans they’ve accumulated. The combination of less free time with higher debt repayment figures creates a vacuum whereby the money earned never gets a chance to enter into the economy. And everyone knows that the quickest way for money to enter into the economy is through consumer spending.
Exaggerated Educational Requirements are Exaggerated.
But, the added debt isn’t the only reason that higher education is ruining the economy. Heck, it isn’t even the student loan interest rates. Our economy has always had an informal hierarchical system. When I say that, I don’t mean that the people with the degrees got the better jobs, either. Not so very long ago, the people who got the better jobs were the people who were best suited to it. For many positions, that meant that the people getting the better jobs were the people with the most experience, and the most aptitude for the position. Somewhere along the way, the people in charge of hiring decided that a higher education degree could replace some level of experience. More and more companies decided that this was a good thing. And now, many job openings require that you have a degree of some sort. Real world experience in a position has been surpassed by classroom experience. Entry level jobs that could just as easily be done excellently by a person with a high-school diploma are suddenly closed off to anyone without a degree. Anyone that aspires to hold such a position is thereby required to attend college for a minimum of two years rather than spend those two years gaining experience and job skills for the position. Worse, for the economy anyways, is that that person is then effectively taken out of the economy for at least two more years. Instead of earning money, paying taxes, and contributing to the economy, that person is racking up the debt while taking so many credits that they can’t even afford the time to take on a part-time job.
How do we fix higher education?
I think, first and foremost, we need to stop pretending that a degree is a “requirement”. Stop pushing our children to attain a degree, and instead push them to get the minimal required training to attain the job/position that they desire. Kids will be kids and they’ll do what they please, but they shouldn’t feel like their being pushed into a college education because their parents want them to get one.
We need to stop requiring degrees for positions that clearly don’t really need one. In my particular field (IT for those curious among you), very little of what I learned in college has been applied in my work experience. And yet, each of the positions I’ve had (with the exception of my most recent part-time job) has required a four year degree in the field. Let me tell you, anyone with an aptitude for IT, and a willingness to learn on the job could have easily fulfilled all of the duties that I performed. It’s a fact. How many other positions are there that are the same way? Lots and lots, I’d wager.
From a strictly financial perspective, we have to do a better job of educating our children about how to go about getting a degree if that’s what they choose to do. There are numerous tools that can help us out, in this internet age. Our own government has a plethora of information to help, and there are plenty of other resources, like Big Future, that have lots of information too.
We also have to properly express what a fiscally responsible adult should do. I can’t count the number of my fellow students (myself included) who took the maximum allowable student loans out, despite not needing that amount, so that they would have the extra funds available to do what they pleased with. Yes, it’s some of the cheapest money you will ever borrow, but unless you’re planning on investing in a guaranteed rate account while you attend college, it’s still debt. And every penny of it will make your financial life harder once you graduate.
Finally, we have to stop this idea that we are all entitled to a college education. We aren’t. It’s a privilege that we pay grandly for. Just because you can spend $50,000 a year to get your library sciences degree, doesn’t mean you are entitled to, or should.
Do you have a degree? Was it required for your position? Should it have been? How would you fix higher education?
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Money Beagle says
I think a college education is important, but what needs to change is the costs and debt associated with college. I think that loans should only ever be used for the education portion of an education. Never should it be used for room and board, food, entertainment, clothing or other non-education expenses. I think if this was a good rule of thumb, college education would be more achievable and more affordable and more apt to keep graduates from being burdened with debts after their education completes.
Kurt @ Money Counselor says
I think the question of whether what you learned in college is useful in your post-college work is complicated and subtle. I have a B.S. degree in Chemical Engineering. Because I continued straight into graduate school and earned an MBA as well, I never took a chemical engineer-type job. However, engineering curriculum builds tremendous math, analytical, and problem-solving skills. I believe those skills have been extremely valuable to me in my career, to a large degree separating me from many of my peers. So though I’ve never worked a day as a chemical engineer, I consider the skills and experience I gained earning the Chem Eng degree to have been decisive in my career success.
Thomas Nitzsche says
This topic is really trending lately! With the increase in student loan debt and tuition costs and the sluggish job market we should expect to hear a lot more about this. A recent Rutgers study showed just under half of graduates are finding FT work within the first year. Another issue is that of private student loans, which may not have the same repayment options as the federal student loans.
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Gilbert Rollins says
I couldn’t agree more to the fact that higher education loan is a burden to most of the students. The interest on the loan is high and the board does not even consider that some of these students don’t get jobs straight away after they finish their studies. I have seen quite a lot of students suffer in paying it.
Jeff @ Sustainable Life Blog says
I have a degree (2, in fact) and the 2nd one was a waste of money – I have never, no will I ever work in the field I got the degree for. Sad, kinda, because i really liked the field but it got decimated in 09, right as I was finishing my degree. I dont think everyone needs to go to college – for my job right now, you do, but I’m doing something pretty specific that requires a lot of background knowledge.
College is expensive, there’s no bones about it and people need to think about that before signing away a few years
Carrie Smith says
“We need to stop requiring degrees for positions that clearly don’t really need one.” I totally agree with this statement and with your post here.
I don’t have a college education, but rather I went to a tech school for 2 years and learned a trade. I also worked for several years as an assistant to an accountant, and I can promise you I learned more during that time, than I would have through the college education experience. This misconception that success equals getting a higher education is definitely throwing our economy into a bad place.
Jacob @ iHeartBudgets says
I agree. I have a good job with only a two-year art school (read: worthless) degree. I think that having a bachelor’s requirement for many entry jobs is ridiculous and employers are missing out on some bright, hard working folks who just don’t want to spend 4 years and hundreds of thousands of dollars to do something that they can start doing today. Job search tools make it so easy for employers to just put on a filter and exclude anyone who doesn’t have a 4-year degree, leaving a ton of potential at the door and banking that everyone who has the ability to spend too much money and pass their courses are better suited than everyone who chose not to.
Adrian Grimes says
I would argue against the notion that a student “is then effectively taken out of the economy for at least two more years”. It is absolutely true that they are accumulating a debt but, to paraphrase Paul Krugman, one man’s debt is another man’s income. In addition, that debt facilitates a lot of economic activity, not the least of which is the contribution it makes to the salaries of academics (like me) who then go on to spend money in the wider economy. A student buys books, (probably a lot of beer), and a wide range of other goods so, economically, they are hardly a lost cause. Things are changing currently, but data demonstrates that, on average, college degree earners go on to earn higher incomes than those who dropped out of education, thus, ultimately, they likely contribute more to the economy. It is only their personal finances that are affected in the short or medium term, but the economy as a whole remains relatively unaffected unless they leave college during a recession – hopefully a relatively short-term problem – and can’t find a job.
As you mentioned, many students take on more debt than necessary and this is probably not particularly good for them as individuals but actually good for the economy, as they spend more money than they would have had if they left school and entered a low-paying, entry-level (maybe minimum-wage) job.
That being said, you are absolutely correct that some careers should not necessarily have a requirement for a college degree, but this would require an enormous change in attitude from employers who tend to use that degree as a yard-stick with which to gauge an applicant’s employability – or even just as an indication of how well the applicant “plays with others”. After all, a college degree is rarely just about the degree, but at least as much about growing up, becoming independent and gaining some ‘identity”.
@Money Beagle, Yeah. And, until the lenders make that a requirement (yeah, right.) we have to take it upon our selves to teach our children the right way to go about it.
@Kurt, my question would be whether that decisiveness has made enough of a difference to have paid for the Chem Eng degree. My guess would be that it has or will eventually, but that it took far more than the 4 years that it took to gain the degree.
@Thomas I think it would be interesting to see how many of those degree holders that are unemployed have degrees that are considered desirable, or that, by my own arbitrary definition are considered necessary.
@Jeff, Yes, I think that there are certainly some degrees that are absolutely necessary. Scientific degrees being one of them.
@Carrie My experience (aside from the fact that I got a 4 year degree that I really shouldn’t have needed) is very similar. I learned far more about the field I went into in the first year of work than I did in college.
@Jacob Exactly. I’d love to see employers move to requiring a 2 year degree as a first step.
@Adrian I disagree. For those two to four years, the student accumulates debt, and isn’t required to pay it back. Until they are required to begin repayment, that income is out of circulation as nothing more than promised repayment. Yes, that debt payout does go into the coffers of the college, and into the register of the liquor store, but, had the student not loaned the money out, they would be, possibly, in a better financial situation, and that money could be lent out to far better means. Also, either I didn’t properly explain myself (totally possible) or you missed part of my point. I’m not arguing for them to skip college and take a entry-level job that pays minimum wage (possibly), but that far more of the entry-level jobs that are currently requiring a college degree shouldn’t be. The college experience can be a valuable part of a degree, no doubt, but can often be obtained for far less money at far cheaper colleges. After all, that experience has far less to do with the education, and far more to do with the social experience.
I think the issue is a culture that pushes everyone to 4yr degree and teaches kids that it almost guarentees and is the only way to be successful. We curently have a very high unemployment yet many skilled trade jobs are unfilled. Most of these are apprentice type jobs where you learn as you go. We have gone from a culture in the great depression were it was better to get paid to sweep streets then it was to take a handout to one were it is better to take a handout then be seen doing manual labor. I also agree businesses used to hire upper management from within, people that knew the business instead of just having the right degree.
Adrian Grimes says
Hi again BB,
A couple of follow-up points. I have a PhD, which took 11 years of post-high school education and as far as what I actually do (the tasks I perform) I could have managed much of it with what I learned in the first year or two. In fact, I could have learned these tasks without going to college at all. However, the overall experience of a PhD and the reason that the degree is a requirement in much of science is in that one ‘learns’ how to identify and approach problems and how to interpret data. I think this is what much of college is about.
I did say that I agree (absolutely) with your assertion that some careers do not need a college degree, though based on unemployment data published last week ( http://bit.ly/KJM5aV ), it is obvious that employers, for whatever reason, have a quite different opinion. In the current market, with so many unemployed, but with job availability beginning to rise again, employers can pick and choose and seem to be selecting employees based on their level of education. Thus, unemployment rates among college degree holders are less than half of those among high school graduates and that disparity is increasing. I agree with you that for many positions this may be short-sighted, but I am not employing anyone (if I was, to be frank, I think I would try to pick the best suited, but I may lean towards a more mature candidate). A major issue, then, is how do you convince a young adult to stay away from higher education at a time when the job market is pitiful and when they would clearly have a better chance of employment – and likely a better life-time income – if they pursued a college degree?
So in this sense, I don’t think higher education needs to be fixed as it provides an obviously desirable service. If anything needs fixing, it is the attitude of those mysterious ‘job creators’. If they were less ‘snobbish’ and started employing high school graduates and started apprenticeship programs and internships, the need for college would simply disappear for those types of jobs. Frankly, I am amazed that many corporations are not providing such alternatives as there is a current ‘anti-education’ and ‘anti-science’ trend and many multi-nationals are sitting on billions of dollars of cash – but perhaps that is a different discussion!
Finally, I still don’t think it is correct to assume that a loan to a student is money taken out of the economy. It is money going INTO the economy from someone with expendable income (the lender) who might otherwise leave it languishing in a bank or investment account somewhere. The student’s “promised repayment” is to the lender, not to the economy, and although the student is in debt, it is (as you suggested) “cheap money” and he/she is spending it on goods and services. If ANY individual takes out a loan for goods (car, house, OR education), unless that individual defaults on the payments, the economy is advantaged (how well would GM, Ford or Chrysler fare without auto-loans?) The difference with education (in most cases) is that there is little to no depreciation on the ‘goods purchased’ and, in fact, in the majority of cases there is considerable appreciation. Ultimately, surely this also is good for the economy?
Do you have a degree?
Yes, a degree in Economics
Was it required for your position?
I am about to become a chartered accountant. My degree was not required. In fact I did not need any degree.
Should it have been?
No. Everything is taught to you as you qualify to become an accountant. Honestly I feel like my degree was a means to an end and that I was just passing through before starting the rest of my life.
How would you fix higher education?
I would remove the vast majority of non-academic courses such as golf studies!
Kevin @ Thousandaire.com says
I love this post. Of course we are ruining the economy by asking people to spend a bunch of money and time on training they don’t need.
College is not a one sized fits all solution, especially at current prices.
@KC Absolutely. Lots of college students aren’t there because they want to do whatever it is that they’re studying, but rather it’s the path that our culture says you have to follow to be a success.
@Adrian I can’t argue that there is a maturity, and a level of experience that is gained from college. Especially at the higher levels. I can argue that in a pretty good portion of graduates, that same level of experience and maturity would have been gained whether they went to college or not.
I think that, depending on what you would be hiring for, the definition of the best qualified candidate would vary greatly. As such, there would be some positions that would absolutely require someone with a degree. Sadly, I think that there are far more that shouldn’t require a degree at all. Why companies insist on that, is beyond me.
Perhaps I should have taken a bit broader stroke and said something like “How the Higher Education ecosystem is ruining the economy.” The truth is that it isn’t solely the institutions of higher education that are to blame. As you mention, they provide a service that is in high demand. People willingly pay for it. But, the combination of the, in my opinion, artificially high demand for college educated workers, and the willingness of colleges to play along is not doing the economy any favors.
I think, in regards to the in/out of the economy argument, we’re simply talking about different shades of the same color. No, in a technical, black and white, sense the money isn’t completely out of the economy. In so much as the student is concerned, solely, it is out of his/her economy. Further, I think that that same money would be just as well spend, in quite a few cases, in other places. If the student had bypassed college, and been able to get the same level of position, they’d already be 40k (or far more) ahead of where they would have been in the current system. I won’t pretend to know your financial situation, but I can tell you that I could find far better places for my money to go than to a student loan payment every month. Places that would better my personal situation far more than paying off a debt is doing.
Of course, all of this is based on a hypothetical scenario where the system were to be fixed. Something that I find to be highly unlikely anytime in the future.
@multimillionaireroad I’m surprised that no one else has brought up classes like that. Or brought up collegiate sports. Both are noteworthy, I think. Having taken several of those type of classes in order to fulfill some arbitrary requirement, I too think that most could be gotten rid of. The argument against getting rid of them is often about providing a rounded education to the students, which has some merit, but at least they should be related to the major of the student.
@Kevin Thanks! I wonder what college would look like as an a la carte solution…
organo gold says
The results of ignorance far out weight the cost of education. Stopping the
attempt to educate our citizens insures the availability of labor at the lowest cost to industry. This fits well with the obvious result of our drug laws to fill our prisons with cheap labor.
We have been sold down the river by scum elected officials completely owned by businesses dependent on desperate people. When these cold hearted bastards get their way we all lose.
The rebranding of the Labor Unions as the cause of our problems is one
of the most abhorrant and deceitful tropes being foisted on the public.
It’s just divide and conquer by withholding jobs and investment until the
working people are stuck and desperate.
Where are the jobs ? USA industries are sitting on over 3 trillion in cash
waiting for what?
Anyway, western wrangler is a dim wit and gets no respect for this asinine foolery.