should i take out student loans

Are Student Loans a Bad Idea? Think Again

Taking on debt is becoming easy to criticize, but are student loans a bad idea for everybody?

As this article is written, the Federal Reserve cites $1.45 trillion of outstanding student loans in America. For anyone with a pulse who’s turned on a TV in the past 10 years, it’s clear we have a problem on our hands. A big problem.

Hey – I graduated with $170k in student loans and you don’t see me crying about it. I think we need to appreciate the long view here.

The situation is bad, I get it – but hear me out:

Not all student loans are created equal.

We all want to earn as much money as possible and spend/invest as wisely as possible, and taking on more debt could be necessary for achieving these financial goals after graduation.

Let me explain.

What we have to look at is the direct benefit the loan can bring to a specific borrower for the rest of their lifetime.

Sometimes, taking on more in student loans to attend an elite college is, in fact, directly associated with future earnings.

Are Student Loans a Bad Idea? They Could Be Your Ticket to Financial Freedom.

Let’s assume an elite and highly selective school with a higher tuition has a fantastic alumni network, a top 25 program for your major, and is a hot bed for recruitment in your desired industry. Is it always worth saving money on tuition if you choose a school that is just average in these areas?

The answer: it depends. But most people would have you believe that it doesn’t.

higher salary expensive collegeIn fact, business and liberal arts majors at the most selective colleges earn significantly higher wages than those from less selective colleges.

These days, it’s common to hear things like: “it doesn’t matter where you go to school”, or “why go to college? It’s a waste of time and money”. Both of those statements can be true depending on what career you’re pursuing or how you spend your time in college.

Maximizing income is an important part of becoming financially independent, so you can’t afford to overlook the potential value of an elite education.

Let’s look at 4 ways taking on more student loan debt could be the best financial decision you ever make.

More Entry-Level Opportunities

Not all careers are created equal.

It’s a simple reality that some companies recruit almost exclusively at a select number of top 20 schools, for example. This is the reality that aspiring investment bankers face.

According to Investopedia, about three-quarters of college graduates in entry-level positions at investment banks came from “target schools”. This list primarily consists of top 20 schools but can depend on the specific bank.

investment banks target schools student loansYou simply won’t see JP Morgan or Goldman Sachs showing up at Southern New Hampshire University to do on-campus interviews. Unless you have an “in” through your personal network or your family, it is extremely difficult to land a job with the likes of these companies if your school is outside of their focus.

If you want to become an investment banking analyst right out of school but also want to save money by going to state school, you could be making a mistake. The analyst positions in investment banking pay very well compared to other entry-level positions that only require an undergraduate degree. Remember that this is just one specific industry example – the same dynamic can be found in other areas of the economy as well.

But all you need is an interview, right? Once you get in front of somebody and they see how awesome you are, they’ll definitely want to hire you!

Another important thing to keep in mind during the application and interview process is that companies discriminate.

They discriminate based on your major and GPA, and they absolutely favor candidates with relevant internship experience. Additionally, they’re often flipping through hundreds of resumes per day. You’re lying to yourself if you think the school on the top of your resume doesn’t matter.

It’s simple brand recognition.

Brand recognition matters, and going to a great school can certainly help you land interviews. If two candidates have the same experience, major, grades, and striking good looks, who do you think they interview: the student from Yale or Appalachian State?

Going to the more recognizable school can put you in front of the right people because access matters. Is taking out a student loan a bad move in that situation? Sometimes you have to spend money to make (more) money.

Gain Access to More Powerful Alumni Networks

In case you’ve lived under a rock for some time, I’m going to introduce you to a popular phrase: “it’s not what you know, it’s who you know”.

Sound familiar? Good.

The power of your network will go a long way in determining your financial future. You want to have a great personal network of family and friends to keep you happy and healthy. You also want to maintain a great professional network which will keep you aware of opportunities, help you out in tough times, and allow you to enjoy your work life.

Business agreement handshake at coffee shopAccording to the U.S. Bureau of Labor Statistics, roughly 70% of jobs are filled through networking. You want in on that action, right? I thought so.

Networking opportunities are everywhere; Every person you meet is a networking opportunity.

But let’s be honest with ourselves for a minute. You don’t want to have just any old network – you want a network filled with people who can help you get to the next level.

The most selective colleges often have influential alumni who work at powerful corporations. Also, these schools often maintain programs that foster alumni engagement with students.

That’s not to say that less selective schools don’t have great alumni or similar alumni programs, but consider the fact that six U.S. presidents and four vice presidents went to Harvard. Is that a coincidence? Regardless, it’s pretty good company to keep, no?

The most selective schools attract the most highly qualified and well-connected students from around the world. The ways in which those connections could change your career are limitless.

Better Chance of Starting on a Higher Career Track

As soon as you enter the workforce you’re competing against other companies and your fellow employees. If you want to be as successful as possible, you’ll try to get every advantage you can.

For many people, attending an elite and highly selective university means it’s more likely that you have:

  • A strong work ethic
  • Intellectual potential that is far above average
  • An elevated understanding of what it takes to be successful

selective college career pathLike it or not, employees become categorized before they start their first day. Employees are generally identified as high-potential, mid-tier, and low-tier. Obviously, all that can change once you start working and show whether or not you can perform.

Come promotion time, with all else being equal, which candidate has the easiest path for promotion: a graduate from an elite school or a graduate from a non-elite school? It’s possible that the predetermined notions about the candidates come into play, which often tilts in favor of the elite school graduate.

Ultimately, relationship building and networking are huge factors for promotion, so the specific company dynamics (e.g. if most high-level managers are from elite schools or not) could ultimately sway the decision.

At the end of the day, it’s tough to argue against the positive characteristics that go along with graduating from a highly selective university, and that could be all the advantage you need to out-maneuver your peers.

More Incentivized to Take Control of Your Financial Situation

If you must take on student loans and repay them yourself, it’s essential to think the decision through. It’s frightening to think about drowning in debt that you can’t pay off.

You won’t make that mistake, because you’ll download my FREE wealth building tool.personal finance college tuition

Doing the math ahead of time in terms of what career you’re pursuing, what the starting salaries look like, and what the living expenses might be in your desired city will make a world of difference. If you’ve figured that out and can confidently say you’ll be able to manage your debt, you’re way ahead of the game.

Go ahead and pat yourself on the back.

Not having to pay for school is ideal, but there’s also a silver lining behind being forced to take a hard look at your finances and getting a game plan in college. Instead of spending your 20s making bad decisions with money, you won’t have the luxury to do that.

Your debt will be the motivation you need to align your expenses with your needs while finding ways to create the brightest future possible.

You either sink or swim, and making sure you can swim beforehand puts you in a pretty good position.

To summarize…

The market is extremely competitive and every advantage matters. If you’re a college student/graduate, here are ten tips for starting your career off on the right foot.

Until then, you need to find ways to make yourself stand out, and the elite schools can help you achieve that as a business or liberal arts major. Unfortunately, these schools aren’t always the cheapest option.

However, I believe it’s likely that earning extra income over the course of your 40-year working career will more than make up for the cost of your student loans. Just don’t let a friend who didn’t think the decision through and is still paying off $120k in student loans dissuade you from making your own decision.

Are student loans a bad idea? Only you can answer that question. If you want to create wealth and be financially independent, student loans might be your ticket.

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All opinions expressed on this blog are solely those of Home at 30 and are in no way affiliated with any other organization or institution. The purpose of this blog is to give general education and information about investing, wealth, careers, and college; It is not intended to be professional advice.

Author: Josh Ramos

Josh attended Wake Forest University and paid a fortune for it. Since then, he’s realized the obstacles that Americans face in moving up on the ladder of wealth. By founding Home at 30, he wants to help students learn the skills necessary for taking the next step on their journey to building wealth.

Are Student Loans a Bad Idea? Think Again was last modified: July 13th, 2018 by Josh Ramos

Comments 4

  1. This is a fair post. It seems that it really takes some good research in a particular field before choosing the right college and loans. I am thinking about changing careers but I am trying to match the career with the loan amount this time. Many of my colleagues in my social worker field are spending 50k for a Masters in Social Work with an earning potential of only about 10k more a year. So not sure if I want to go this route because it doesn’t seem logical. I was thinking of changig my career to business or finace. This quote is the truest here and it is what I am struggling with:
    “Doing the math ahead of time in terms of what career you’re pursuing, what the starting salaries look like, and what the living expenses might be in your desired city will make a world of difference.”
    I am working on doing the math before choosing a masters program. However, I do need to think about the fact that employers do take the school into account too. I have a lot of research to do.

    1. Post

      Thanks for commenting. Your instincts are probably correct – an extra $10k/year (before taxes?) isn’t going to afford an easy pay off for that $50k. Plus, life only gets more complicated and it’s natural to upgrade some things when that pay raise comes.

      If you’re thinking of switching industries, speak to people in that industry as much as possible. Networking will always beat online research!

      Sounds like you’re on the right path and are thinking things through! Cheers to that.

  2. Really really enjoyed this article. I think people are so obsessed with never having any debt ever that they don’t stop to think about the benefits other types of debt can have.

    Of course, going into credit card debt because you can’t control your spending is absolutely a terrible idea, but gaining debt because of education (and the right education) can have a huge, positive impact on your life.

    By the end of dental school, we will have upwards of $400,000 of debt. But my husband’s earning power has now increased exponentially.

    This is absolutely a personal decision, but I love the points you make. Great article!!

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