It would be difficult to disprove the fact that education helps people move up the income ladder. There are few other better predictors of future income than level of attained education. People with college degrees earn many times more over their lifetimes compared to those who jump off the education train after a high school diploma.
So, in theory, easy loan money to finance a college education should help move all college graduates up the earnings ladder and help alleviate high levels of income inequality.
But now all we hear about is the approaching college debt crisis…
Now that the bill is coming due and millions of people equipped with college degrees actually need to pay for that education there seems to be a lot of whining going on.
Simply put all college educations are not equal…
A newly minted computer programmer can earn over $80,000/year while a Political Science major might earn $30,000/year because demand is sort of low for Political Science majors and they may end up in retail, fast food, or making your morning latte a Starbucks.
It is much easier to pay back $25,000 in college debt when you are working as a computer programmer than if you are crafting fine premium coffee beverages. I don’t think computer programmers are whining about their college debt since the return on their loan is about three times their loan amount just in the first year on the job while the valuable yet less employable Political Science graduate is looking at just over a one times return on their college investment.
Yes… Maybe college students should look at their college cost as an investment in their future. The same way they will someday invest in a home, car, or IBM stock.
Maybe before signing on the dotted line for their college loan they should consider how much they might earn after they graduate in their selected field. If these loans were not government guaranteed and their repayment was the sole risk of a bank or educational institution I’m sure future ability to repay the loan would be a key factor and it might be quite difficult to get a loan for a Political Science degree which costs the same as a Computer Programing degree.
Here’s the scary part…
There has been some talk of loan forgiveness. If a college graduate can’t pay back their loan after a few years then the balance will be wiped away. Like magic.
Nice… And very dangerous!
If we start forgiving loans because people made a decision to pursue the wrong education. An education that has a low future earnings potential, then we will just end up with more people earning low future wage degrees that do not help them move up the income ladder.
And that is the goal of the entire education system… To move people up the earnings ladder.
If someone’s passion is to study Political Science, Philosophy, Anthropology, or and of the other less marketable degrees then great. They should pursue their passion. But it is a catastrophe just waiting to happen when a government offers to pay off their debt when that government has not even figured out how to pay for a near universal medical program, social security, or a bloated government bureaucracy.
Taking on a new expense like this will have two guaranteed effects:
1) Add to a national debt that we all will pay for at some point now and in the future.
2) Act as a disincentive for college attendees to choose areas of study that will move them up the income ladder to help alleviate and income inequality trend that is moving in the wrong direction.
There is only one downside to a program where college graduates are made to pay for their debt…
Future students will be incentivized to pick more marketable areas of study and Starbucks will need to raise wages as less people need those low-skilled jobs.
The cost of our daily lattes will certainly rise. But I am ready to deal with that inconvenience if it will help alleviate income inequality.