Many Millennials have high career aspirations. We want to do what we love. We want to change the world. It is these career aspirations that have led so many of us to attend college. But a college degree is first and foremost an investment, and for most college graduates, it is a leveraged investment. For example, if a college student secures $50,000 in student loan debt at an average interest rate of 5% to pursue a college degree, that is no different in principle than taking out $50,000 worth of loans to purchase a dividend-paying stock in hopes that the returns outpace the growth of the debt itself. A college degree is, after all, an investment made with the purpose of increasing revenues and paying dividends for your own personal balance sheet. We can never lose sight of this reality.
How a student approaches a college education scenario speaks volumes to their abilities as an investor. A “value investor” type student will survey the market for in-demand careers that offer above-average employment rates and above-average salaries. This student will then survey potential colleges that offer the best mix of cost of attendance, reputation and, potentially location and quality of life. The value investor student will obtain the degree that presents the lowest average opportunity cost with the highest average potential for employment opportunity and monetary compensation/spiritual fulfillment to suit their unique lifestyle.
A “bandwagon investor” type student will not perform these calculations. A bandwagon student may select their college based on proximity to home, based on where their friends are going, based on “party school” rank or ease of curriculum, all the while not paying much attention to costs thanks to the temporarily deferred student loan debt. This student will follow the herd – they don’t have a real plan, but since everyone else is going to college, they should, too.
These two hypothetical investors will see drastically different investment returns on their degree. And since these two hypothetical investors are using leverage to obtain their degree, their returns will be amplified, whether positive or negative.
Born in 1986, as one of the “older, wiser” Millennials roaming the planet these days, I’ve made several observations about the overall state of my generation when it comes to matters of education, employment, finance and overall happiness. It just so happens that there is a common thread among Millennials who are underemployed, heavily indebted and disillusioned with their lives – even downright angry with society as a whole – they went to college, and they were bandwagon investors.
The Most Popular College Majors
According to USA Today, below are the Top 10 most popular college majors transitioning from the 2014 to 2015 school years.
9. English Language and Literature
8. Liberal Arts and Sciences, General Studies and Humanities
6. Criminal Justice and Corrections
5. Teacher Education and Professional Development, Specific Levels and Methods
4. General Biology
2. General Psychology
1. Business Administration and Management
According to an analysis of government data by Mark Kantrowitz, publisher at Edvisors, the average Class of 2015 graduate with college loan debt will owe more than $35,000, which has more than doubled since the early 90’s even after accounting for inflation. (Remember, this is in principle $35,000 of leverage for their investment in a college degree.) The chart below shows a disturbing trend in our nation’s youth.
In total, Class of 2015 Graduates owe about $56B in debt, a blend of both federal and private loans, a fivefold increase since the 90’s.
I highlighted five college majors specifically on the list of the Top 10 most popular majors. They are:
- English Language and Literature
- Liberal Arts and Sciences, General Studies and Humanities
- General Biology
- General Psychology
Now, I mean no disrespect with what I am about to say. However, college is not just “something you do” after high school. College is not a Hollywood movie where you spend four years with Van Wilder having “The College Experience.” College education is an investment, and like any other investment, if the ROI isn’t attractive, it is a terrible investment and should be avoided. Exactly how is a student going to be able to afford to pay back $35,000 worth of student loan debt with a degree in one of the five majors listed above? It is difficult to secure a job that is relevant to those fields due to low demand, and the pay that comes along likely will not be much higher than if one didn’t take out what amounts to a loan for a luxury vehicle to fund it. Frankly, even “Business Administration” and “Education” are degrees one probably shouldn’t spend a lot of money obtaining as most of the credits can be completed at very reasonably priced community colleges. If a college degree is not going to increase your chances of employment at a salary much higher than potential career opportunities without a college degree, why pay so much for it?
College Is Viewed As A “Right” Even Though It Isn’t
It used to be that college education was reserved for very specific fields – Healthcare (Nursing/Physician), Law, Engineering and those with professorial aspirations went to college with clearly defined goals. Today, countless students are unnecessarily attending college with undeclared majors taking “general studies” courses, and paying an arm and a leg to do so because they have been told they must do so.
The Bureau of Labor Statistics estimates that as of October 2014, 68.4 percent of 2014 high school graduates were enrolled in colleges or universities. Given that Mr. Kantrowitz estimates 71% of college students are graduating with student loans today, that is a whole lot of indebted graduates.
We have a mass exodus of college graduates that went to college because everyone else they knew were doing it, took out loan debt despite having a poor understanding of the value of a dollar, graduated with degrees that do not offer valuable employment skills in high demand, and as a result are unable to afford to move out on their own. Because they were “told” by our state-funded high school system that college graduates have higher earning potential, they feel they are entitled to a sizeable paycheck, but the reality is the market defines your paycheck based on the supply and demand of your skills, not based on your high school teacher’s platitudes. My generation feels lied to, and as a result, we share some kind of disillusioned, anti-corporate, idealistic kind of depression.
The Failure Of The Education System
Truthfully, this situation feels like a conspiracy theory of sorts.
- Step 1: The Federal Government gets into the student loan business, earning a profit on the backs of America’s youth.
- Step 2: The state-run public education system indoctrinates students into believing college is a right and the natural path after high school while simultaneously disparaging more traditional blue-collar vocational education.
- Step 3: Taking advantage of ZIRP and historically high monetary liquidity, student loans become extremely easy to obtain for all.
- Step 4: Due to huge student base expansion and extreme monetary liquidity, colleges are able to increase tuition at an extreme rate due to simple supply-and-demand economics. Prices will rise as long as people will accept paying for them.
- Step 5: Because demand for college education is so high, more and more ‘creative’ (i.e. less useful) fields of study are added to attract even more students, further decreasing the value of a college education by diluting the effectiveness of a college degree at securing high-paying employment.
It feels like the government is purposefully using the public education system to drive more student loan debt to rake in more revenues, and it seems like the University System is taking full advantage of this phenomenon by jacking up tuition to generate obscene profits, all on the back of my generation’s blissful ignorance.
Frankly, I am appalled by the parents that cosign for these loans and allow their children to take on so much debt that they likely cannot pay back. This is the effects of social pressures and complacency. As much as students want the fabled Hollywood college experience, parents want to be able to say their child is going to some fancy college, and as long as the loan payments are deferred, everyone can live in Fantasy Land.
An Alternative To Useless Degrees And Crippling Debt
I went to a private college for a 5-year Electrical Engineering program from 2004-2009. When I was a freshman in 2004, my university’s combined full package with tuition, room and board, the full meal plan, books estimates and associative fees was $33,000/year. I made a decision to attend that college because I was given substantial scholarship money, had three different paid internship cycles built into the curriculum and worked a job on weekends. The end result was I was able to graduate owing approximately 65% of my first year’s annual salary, which was easily affordable for me to manage.
This is my rule of thumb: Do not take on more debt, total, than you expect your most conservative first year salary estimate to be.
That same school, today, costs over $65,000/year, effectively doubling in cost in 11 years. I would not attend that school today if given the opportunity, because the costs are far too high. The ROI on the degree no longer is attractive.
I found my way into project management for larger-scale electrical construction projects. This involves working alongside skilled tradesmen, and the amount I learned was a revelation to me. The fact of the matter is, as it stands today, I would have made far more money working a lot less hours going directly into a unionized trade within the umbrella of the International Brotherhood Of Electrical Workers [IBEW]. And I would have done it without racking up any debt.
Electrical construction is split between two trades: Electricians and Linemen. Electricians primarily deal with the distribution of power indoors and in confined outdoor areas. They are experts with wiring and masters of the National Electric Code. Need your home or office wired? You need an Electrician.
Linemen are responsible for outdoor power transmission and distribution. Linemen work on power lines, both aerially at the pole and in underground ducts.
You learn to become a master at your trade by entering into an apprenticeship. These are paid, and are a multi-step process with many different levels (Apprentice-1st Period, Apprentice-2nd Period, Apprentice-3rd Period, etc.). Your step is completed as you accumulate working hours of experience, and of course, you are paid throughout the entire process, each step commanding a higher pay scale. The final step is a Journeyman.
Today, Journeyman Electricians in our Local are paid just a few pennies under $53/hour (over $79/hr overtime) with over $22/hour in combined health and welfare and retirement contributions.
Journeyman Linemen are compensated very well as well, earning an hourly rate of $51/hour (over $76/hr overtime) with over $20/hour in combined health and welfare and retirement contributions.
A Shift In Future Demographics Imminent?
There is a real lack of promoting trades in our education system, and I believe that many students attending college today would perform better in a trade, while emerging in much better financial shape. I believe that our public education system has shielded students from these trades, applying almost a negative connotation to them, and I think it has to do with promoting college to all to generate revenue off the federal student loan system. It is possible to have a well-paying career with a good pension and benefits while accumulating no debt, and we have forgotten about these opportunities as a generation.
I am in no way promoting labor unions or trade schools over college. I am simply stating that a college degree should be looked at like any other investment – if the returns are not adequate, it is not worth committing principle that investment. Consider every option when graduating from high school. Consider obtaining the majority of your credits at affordable, local community colleges. Consider skipping college altogether and learning a trade, or several trades. Consider joining a Union Local. An expensive, four-year private or state college degree may force you to accumulate more debt that the degree will ever pay for, and it is not a mandatory plan for everyone’s future. There is no shame in that.
Just like the tech bubble of 1999 and the housing bubble of 2007, there is a growing college cost bubble. My generation is slowly waking up to the fact that a college degree does not guarantee a lucrative and fulfilling career, and as young people become more and more aware of this, the bubble will burst when the supply-and-demand metrics begin to reverse. Today’s Federal Reserve decision to begin an upward trend of interest rate increases will only speed up this reality as the monetary supply becomes less liquid and loans become more and more expensive to obtain. The only logical path will be the rediscovery of alternate paths to career success such as skilled trades, freelance work and good old fashion entrepreneurship.
I have seen college education ruin the lives of people in my generation by burying them under a mountain of debt they will never be able to pay back. We all should be investing in our future, but whatever path we take, make sure to calculate the risks and rewards for taking it. The statistics are clear that many young people these days are not calculating the costs of their college education, and it could be a mistake that will haunt them for the rest of their lives.All information found herein, including any ideas, opinions, views, predictions, commentaries, forecasts, suggestions or stock picks, expressed or implied, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. I am not a licensed investment adviser.