This post is an excerpt from my upcoming book Grades and Girls. This book is the definitive guide for young men in college, or for those who plan on attending. For updates and more info on the book, sign up for our newsletter (on the right) to stay in the know.
You’ve probably heard about America’s $20 trillion debt. But like all entities, the U.S. government has assets as well.
In fact, the U.S. government has $3.2 trillion in assets. This includes cash, gold, buildings, land etc.
But can you guess what the single largest asset of the U.S. government is?
31% of US Government assets, or $1+ trillion, are federal student loans. The government will give nearly any student a loan to help make their dream of college a reality and has made a pretty penny doing so.
Now, could it be that the government has some financial interest in keeping this scheme of sending everyone to college going? I think it’s fair to say yes. And the government is not the only one, as banks, Wall Street and academia collude to hike prices of college tuition.
Student loans are big business. Therefore, the government pushes the idea that everyone needs to go to college.
Despite tuition skyrocketing, young men and women will continue to enroll in college. Of course, they don’t have the money, but the federal government is always there ready to give them a check for tuition, books and even living expenses.
This is why tuition prices will continue to rise. They are not subject to standard market forces, because the government backs up all these loans.
What this has done is that it has created an excess amount of students going to college. Much more than the market demands. This is why you hear about so many unemployed or underemployed college graduates.
Again, the government does not care about this problem. They may pretend they do, but as long as student loans remain their cash cow they will continue to push kids into college, with more and more debt.
It’s a vicious cycle, and one I want to make you aware of. It’s also a concept that can easily be explained to friends and family to red-pill (expose the truth) them.
This idea that everyone should go to college to be successful is pushed from the top down. College is certainly not a bad decision, but the value of a college degree is becoming less and less. Especially considering the debt load.
Decades ago college was just a fraction of what it is today:
Many people, like my dad, could pay for much of their undergraduate tuition by just working a part-time or summer job like mowing lawns or waiting tables, because the price was so low. Today, for the aforementioned reasons, tuition has skyrocketed out of control. Few, if any, students can pay tuition working full-time alone (And if they could afford it I would question their motives to return to school).
This has led to massive student loan debt among 43 million borrowers.
The fact that students are allowed to take out all of this money for a degree is insanity. It should be criminal the way the government forces these loans on students:
Aaron Clarey said it already in his brilliant book Worthless, but it bears repeating: it’s absolutely insane that we allow 16 and 17-year-olds to make these kinds of decisions. We don’t let them smoke, vote, or drink, yet we allow them to shackle themselves in the chains of debt slavery by letting them major in useless subjects. And when they end up slinging lattes at Starbucks, we scratch our heads and wonder “Hurr durr, how did THIS happen?” (Return of Kings)
Today, the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year. This is disturbing. A six percent increase is massive! This is compared to around a 1% increase in consumer prices. Again, this is because people are being herded into college, and these universities are able to jack up prices as high as they want.
And what about grad school?
Going to med school or law school can have people in six figures of debt. I had a recent conversation with a friend from college. She told me that her ex-boyfriend is in around $225,000 of debt from law school, undergraduate and living expenses. That’s crazy! If he gets a good job as a lawyer, that will help, but it’s still a huge cloud over his head.
Is Debt Really a Problem? (A Contrarian Point of View)
One of my favorite writers on personal finance is Financial Samurai. He wrote an article that suggests student loan debt is ‘No big deal.’ The idea behind this post is that most student loan debt is from grad students. Grad students are more likely to get good paying jobs, and therefore will not have to allocate a substantial portion of their income to this debt. Moreover, he suggests people refinance their loans with organizations like SoFi (which I agree with wholeheartedly).
While Sam makes some valid points, he is wholly ignorant of the aforementioned amount of inflation on tuition prices. Students in the past didn’t have to deal with this type of debt—why should we now?
Student loan debt is undoubtedly a problem. And not just for individuals, but for the country as a whole.
Figure Out Your Potential Debt Load
Before choosing what university you will attend, you should figure out how much you will be paying. Look for these numbers:
- Cost of university tuition (and other fees) over 4 years.
- Find the average salary upon graduation for university (specifically your program, if applicable)
What you want to do is to calculate your debt to income ratio. The simplest formula is to borrow less money than you plan to make for a starting salary.
If you plan on making $50,000 out of school, you should take no more than $50,000 in loans. This is a liberal estimate.
In fact, you should be much more conservative with your borrowing. Taking into consideration taxes and interest rates, a better rule of thumb would be to borrow no more than 60% of your expected income (See this calculator for more details). So, if you plan on making $50,000 a year, you should borrow no more than $30,000.
The ideal university is one that adds a substantial amount of income to what you would expect to earn, but also minimizes debt load. Wall Street Playboys explains:
“If your additional net income from year one post graduation is equal to your debt load then it is likely a positive. This means your degree must add $X and that amount cannot exceed your total debt upon graduation of $Y.
Additional income from education in year one = Total Debt (ideally better)”
If you follow my advice, such as staying in state, going to community college, and starting a side hustle, you can easily cut costs of tuition and you’ll never have to worry about getting bogged down by mountains of debt.