In this post, I invite you to consider the sixth of twelve propositions I offer relative to national higher education policy.
Higher education policy proposition #6:
Like most all major purchases, responsible college financing may be appropriate, even if not preferable.
Don’t get me wrong
Don’t get me wrong. I’m not a fan of college debt. On the other hand, caricatured portrayals of galloping student debt among politicians and journalists imply the average college graduate is underemployed and saddled with crippling long-term debt.
This is simply false. Permit me to repeat some countervailing facts I cited in a previous post:
- the overwhelming majority of large debt is associated with graduate degrees in the medical and legal professions
- 67% of 4-year college students have debt of less than $25k upon graduation; debt repayment burden averages 4% of post-graduation earnings
- private college student loan default rates are the lowest of any higher education sector (the real scandal here is the 15+% default rate among for-profit college students)
Financing college is better than financing a car
While plenty of college students foolishly take on too much debt, the idea of modest, responsible borrowing relative to a lifetime of personal and economic dividends is reasonable. If we are prepared to finance cars and consumer goods, surely financing education is a better investment.
I offer the following guidelines for responsible college financing:
- borrowing should be a last resort—undertaken after all efforts to fund education via need-based aid, merit aid, scholarships, and employment
- borrowed funds should be applied exclusively to educational expenses (more about this in my next post)
- borrowing should be limited by the reasonably anticipated capacity to repay, not based on the gap between resources and cost
- a reasonable debt repayment ceiling should be less than 10% of net projected earnings;
- student borrowers should follow Dave Ramsey’s “debt snowball” plan to eradicate debt as quickly as possible
If a responsible home mortgage makes sense …
I believe it is appropriate to think of college debt as resembling home mortgage debt more than consumer debt. Consumer debt is an expense. Most goods you buy on credit depreciate. Home mortgage debt, on the other hand, is an investment calculated to pay long-term dividends. Judicious borrowing and rigorous, realistic self-imposed underwriting considerations can produce a return that far exceeds college borrowing cost, which of course includes the accrued interest cost.
Bottom line, avoid borrowing if you can, but borrow judiciously if you must. College pays lifetime dividends—economically as well as in many more important forms of spiritual and social currency.
Next time, I’ll take up an important caveat: government policy should dis-incentivize student debt and prevent servitude to educational debt.
Fresh gleanings to fuel your leadership awareness, reflection, and conversations …
When issues become politically contentious and complicated, I always find it helpful to gain greater historical perspective. Since we believers are compelled to grapple with what it means in our time to “welcome the stranger,” it may be helpful to learn more about our nation’s history relative to that value—even if we reach different conclusions about contemporary legal and political solutions.
Viewing this video, Godspeed: The Pace of Being Known will require some time. You will be tempted to overlook it. You are simply too busy. And that very reality constitutes the reason you should take the time to view it. It may save your life and your ministry effectiveness.