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WHEN I WAS YOUNG and unschooled about money, I borrowed thousands of dollars to attend Northwestern University. As I recall, tuition was around $12,000 a year in 1980, and I had only $3,000 to my name. How could I pay?
The dean sent me a letter explaining that the college would lend me the money for my master’s degree in journalism. It would also extend me a work-study job, which would help pay for my spartan off-campus room.
I jumped at the offer and started the four-semester program. Each term, I would walk across campus to sign my name on a couple of long loan sheets. Did I understand what I was doing? Vaguely. What I mostly comprehended was that an exciting year at university seemed practically free to me.
Fortunately, after graduation, I could afford to repay my loans on the paltry income I earned as a cub newspaper reporter. Unwittingly, I had obeyed this rule of thumb: Don’t borrow more than you’ll earn in one year in your chosen field. In my case, I borrowed around $9,000 and earned $13,000 in my first year at The Bradenton Herald.
The great thing about college loans is also the worst thing about them: You don’t have to be financially qualified to borrow money. The federal government guaranteed repayment of my loans, so no attempt was made to determine if I was financially qualified to repay the sum involved.
Please let’s avoid a political discussion about college debt forgiveness, pro or con. What I want to focus on here is what an attractive trap the guaranteed student loan has become, especially as college costs have escalated. It’s easier to borrow more than you can afford, and there are too few adults warnings kids about this easy money.
It may fall upon parents to ask if their children are getting over their heads in debt. I’d start with the rule of thumb I just mentioned: Don’t borrow more for college than you could earn from one year’s work in your future career. It’s an arbitrary standard that contains a kernel of truth: cost and value should balance.
One obstacle to following the rule is obtaining the necessary cost and income data. College costs are opaque. Recently, I looked up how much students borrowed and subsequently earned, on average, at hundreds of colleges using a calculator published by The Wall Street Journal. The Journal’s information is hidden behind a paywall, but you might get free access at your local library. The Journal breaks down data collected by the Department of Education by college, degree and major. Can’t get access to the Journal’s calculator? You might instead look at the Department of Education’s College Scorecard.
From my research, many majors at many colleges appear to easily pass the test. Students in accounting, biotechnology, business, computer science and engineering all borrow less than they typically earn in their subsequent careers, no matter which school they attend.
The Journal’s research highlighted a darker trend: Master’s programs at some prestigious universities can land their students in far more debt than they can afford. For instance, students who earned a master’s degree in social work at the University of Southern California typically borrowed $112,000 for jobs that paid $52,078.
Why not pursue the same degree at a place like Bryn Mawr College, a highly regarded women’s college outside Philadelphia, where the median student borrowed $45,250 and later earned $48,579 a year? Bryn Mawr’s social work master’s program is coed. Findings like this suggest that students can follow their passions without sinking into debt—if they’re wise about which school they attend.
Here’s a second example: Students who earned a master’s degree in journalism at Northwestern University had a median debt load of $54,936 in 2015-16, and median pay of $41,565 two years later. Because their debt was higher than their subsequent annual income, my old school doesn’t pass the rule of thumb.
But some 400 miles away, at the University of Missouri at Columbia, the median journalism grad student borrowed $21,000 and earned $50,543 two years later. Missouri passed the debt-to-income test handily. I’ve taken courses at Missouri and Northwestern, and found both excellent. All else being equal, Missouri would be the better school for a student to attend.
You’ll notice I chose lower-paying fields—journalism and social work—for my examples. Students don’t have to give up on the liberal arts if that’s what excites them. But they do need to be choosy about which college they attend. Some well-known schools cost too much, while many other well-regarded schools outside of big cities are far more affordable.
Are there downsides to this approach? Yes, several. First, it embraces the notion that borrowing for college is normal, as long as you don’t go too deeply into debt. Arguably, the right amount to borrow is zero, if possible.
Second, students may not know their major when they enroll in college. It’s also routine to start with one major and wind up with another. Still, if you’re a parent, talking through the debt-to-earnings ratio with your teenager might spark a worthwhile discussion about the economic prospects of different schools and majors.
Third, this rule of thumb seems not to work for some high-paying professions, like dentistry and medicine. Doctors’ early earnings are dwarfed by the size of the debt they take on, yet they may do fine over a long career. On the other hand, some medical graduates do find themselves squeezed by debt, even though they enjoy strong six-figure incomes.
Finally, this data-driven approach does take the romance out of a traditional method of college selection—falling in love. A tree-lined quadrangle might be a trap for the unwary student if the school is too expensive. My advice: Run debt-to-income comparisons before scheduling visits so your child doesn’t fall in love with the name-brand college that costs more than the child can reasonably afford.
Do parents have an obligation to pay part or all of their children’s college costs? Offer your thoughts in HumbleDollar’s Voices section.
Greg Spears is HumbleDollar’s deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.
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If you wanted to flip the switch and more easily include student debt in bankruptcy filings, the lenders would have a real vested interest in more closely underwriting those loans.
clear, well-organized article (as we should expect from a journalism grad. I am sending it to my kids with teens.
A major reason that costs of attending college at state assisted schools have risen faster than inflation is that state legislators are paying a considerably smaller proportion of the bills. A generation or so ago, public colleges got about 1/3 of their funding from the state budget, about 1/3 from tuition/fees, and about 1/3 from research grant money and private donations. Nowadays, on average, only about 1/4 of state colleges’ funding comes from state appropriations, and increases in tuition and fees have made up most of the difference. The second big factor has been the huge growth in administrative overhead (primarily salaries of non-teaching administrators and their support staff). Just recently, the total number of college administrators in the US was announced as having finally exceeded the total number of full-time college faculty members.
Excellent article! Curiously, I used the same rule in the 70’s and made it thru college, business school and law school with debt = to 1st year’s salary. The underlying problems with higher education costs in this country are many: ill/poorly informed students and parents, rising costs that seemingly have no relation to actual cost of living rises, no accountability for education providers and lenders, an extremely favorable risk/reward ratio for lenders to name just a few. The system has no interest in regulating itself so, unfortunately, Congress will need to step in if we are to correct its problems/excesses. In normal times, that is difficult and now it is impossible. Schools and lenders should be prohibited from lending to students who have a low projected chance of repaying loans. schools and lenders (and perhaps borrowers) should pay some small portion of loan value into a fund to be used to provide assistance to borrowers who get in over their heads. Loan discharge programs should be expanded, especially for those skill sets obtainable only thru higher education that society deems essential. Loans should be more easily discharged in bankruptcy. There are many fixes available but those benefits (schools/lenders) have no incentive to act and Congress is too politically polarized to take on something that really is an easy bi-partisan fix. Frustrating.
Our middle son always struggled in school, along with a host of physical and emotional problems. Trying to find a program he could deal with, we put him in 4 different high schools in 4 years and he barely graduated. He didn’t want to go to college, so for the next 6 years he worked a series of dead end jobs while both his brothers completed Masters degrees. The classic ” late bloomer”, he finally found a calling after undergoing heart surgery at age 24. He decided he wanted to become a nurse. 2 years of fulfilling requirements for a nursing program, he got into an accelerated RN program at a Community College in Los Angeles. He graduated at the top of his class (with no debt) and now, his first year as a dialysis nurse, is making $80,000 a year, with a bright future. Some kids just aren’t ready for college directly out of high school. His is a bit of an extreme example, but for him (and us), community college was a godsend.
The $12,000 you mentioned for 1980 must have included everything (room, board, books, etc.). According to historic tuition data I found online (https://t.ly/BwvPE) tuition (and fees) cost $8,895 in 1983 (the closest year that I could find). Northwestern tuition rose to $63,468 in 2023. If their tuition increased in proportion to overall inflation, it should only be $27,248. In my opinion, this is the bigger problem.
“…No attempt was made to determine if I was financially qualified to repay the sum involved.”
Because no lender is qualifying students for a loan, parents and students need to perform that task. A key role for parents is to evaluate their child’s realistic prospect for completing college. It is one thing to borrow and get a degree. The worst-case scenario is to borrow and NOT get a degree… which happens to many students today. A mortgage lender told me that one of the main reasons young adults do not qualify for a mortgage is their student loan debt and in many cases this is happening to people who do not have a degree.
Another commenter mentioned how many students take 5-6 years to complete their “4-year degree.” When doing the math, parents may want to consider the added cost of an additional year (or two) at their child’s chosen school if the degree is not completed in 4 years. What is the plan to pay for that?
Planning needs to start in middle school. Students need to think about career options and plan their studies to be prepared to complete that 4-year degree in 4 years or less. AP or college courses offered in the high school are ways to test a student’s preparation. A well-prepared, focused student is a much better risk than one who is attending college with no plan or serious preparation. If no one else is going to measure the risk of taking out student loans, then the student and the family need to do so.
Master’s programs tend to be cash cows for universities. You mentioned USC, which is my alma mater—I got my Ph.D there, but I had a full ride, which is more typical for doctorates. Part of my ride was teaching English to international students who paid full freight from programs like…the master’s in social work program.
I remember when one of my daughters was finishing undergrad, she got dazzled by a cool-sounding interdisciplinary MA program in the humanities at NYU. She applied there and was admitted, of course, but then she realized that it cost $50K+/year, had no financial support, and no job prospects. It was just a fun option for rich kids who thought it would be awesome to go to school in NYC for a couple of years.
My husband and I did our grad/professional schools between 1986-1994. We borrowed $5K early in my Ph.D so that we could get a computer. We borrowed $5K before his last year in law school because we were expecting our second child, I was supporting us, and I was going to need to take a leave (unpaid) when the baby came. But he already had a good job lined up, so we knew we’d be able to manage the student loan. Those modest debts turned out to be good investments in our future, but times and price tags have changed.
I graduated from Dental School without any debt which was a huge advantage to starting to save for house and retirement at a young age. I have been a big advocate for community college for two years then transferring to 4 year university in state. Starting with no debt not only started us on right track to save for future but it also helped us have a ball along the journey.
My first year at Virginia Tech was $3000 out of state, including room and board, and I received a $2000 scholarship. My dad, being a bit older, was getting Social Security payments for me as a dependent so he actually came out ahead that year. 35 years later, my son went to the same school and the cost was $40,000. According an online inflation calculator, the cost should have been $8629. Why in the world have college costs risen so far above the inflation rate? I concede that my son ate like a king on campus, while during my era Jabba the Hut might have turned away in disgust from the dining hall food, but…come on!
One might suggest that the main reason that college tuitions have risen far, far more than the rise in inflation is precisely because student loans have been so easy to get. When the extraction from fairly naive students of enforceable promises to pay became a process for which there were few controls or safeguards, colleges and universities had powerful incentives to push the matter as far as possible to generate more revenue.
Why have college costs risen so far above the inflation rate? Primarily because of administrative costs. If you ever have the opportunity to compare how many administrators were on campuses in the 1980’s versus today, you will probably be shocked.
And the ‘college experience’ has added significantly to the costs as well. There are campuses that have their own lazy rivers. And a lot of dorms now look more like luxury hotels than dorms. And, as you mentioned, most food service facilities on campuses no longer look like dining halls as much as they resemble high-end cafes.
Great article, Greg, and timely for us with a student who just graduated debt free with a bachelors and is on the hook for the cost of their grad degree.
Cheapest path to an undergrad degree is still two years at a community college then finish at a four-year school.
Just yesterday, my wife and I picked up a pair of night stand tables she found on Facebook Market place from a young couple in Atlanta. Upon our greeting the young Atlanta couple through conversation the young lady selling them was moving from Atlanta to Boston to attend MIT for her MBA thus she was selling all her stuff. We congratulated her on her indevor to go to MIT and left after picking up the tables. While driving away my wife and I discussed why this young gal would not have considered the top rank Georgia State University in Atlanta which by the way was about walking distance from her condo.. Perhaps she did, but my guess was she was smitten with the idea that an MBA from MIT was worth its 10x value vs the costs for in state tuition to Georgia State Universitys MBA program. Perhaps she will learn that lesson getting her MBA while at MIT. In our opinion the “name brand” is not always the best deal for the money spent…
The median starting salary plus bonus for MIT grads in 2022 of $195,000 was the 6th highest among MBA programs and only $10,000 below #1 Wharton. Sometimes is does pay to go to an elite school.
Due to a shortage in construction trades many electricians and plumbers now make more than some college graduates. Also they earn money while learning their trade and are debt-free.
I think you could go so far as to say “many electricians and plumbers now make more than MOST college graduates”. Add in welders, HVAC technicians and medical equipment repair-people and it’s pretty clear the trades hold a huge advantage when it comes to calculating a ‘debt-to-income’ ratio.
A great resource for exploring colleges is the Department of Education’s College Scorecard. Prospective students and their parents can use the site to find the most recent data on average salaries, debt upon graduation, and graduation rates, by institution and by major.
Another important datum, “average time to degree”, is harder to find. Taking five or even six years to graduate with a four-year degree is common nowadays. Published graduation rates, such as those the Scorecard reports, are usually eight-year rates — in other words, the percentage of students starting in a given year that graduate within eight years.
Of course, the time needed to finish a degree can be highly dependent on the student, but institutional factors such as course availability also play a role. Colleges track the average time to completion and asking for this information when comparing colleges is important.
Hi Greg, this is Chris. Since your article was about college and graduate degrees, I wanted to mention the field of food science, that one of our children is in. If any of the readers have a kid that is talented in chemistry, this is a major to check out. Our child came out with a PhD debt free b/c there are not very many people with advanced degrees in this major. Our government, through the Dept of Agriculture, awards fellowships in this and other underrepresented agriculture fields. They are trying to educate the next generation of college professors and research scientists. Our child has a good job that pays well. We had no idea about this program. It was a blessing to our family. Our child had originally started the food science major as a way to do pre med. It is heavy in organic chemistry.
Food for thought for sure.
To be honest I have soured on college as it is structured. Too expensive no matter what and too long to a non- professional degree. We have also lost site that no matter where one goes to college, no matter their degree, success always comes down to the individual’s behavior during and after school.
A degree is no golden ticket.
I’ve looked up college graduation rates and then find they are reporting a degree obtained in six years. In my view there is no reason a basic degree can’t be achieved in three years.
Education is a wonderful thing, but spending a quarter of a million to get a piece of paper and a BA is not in my opinion.
The whole system needs reworking. students and parents (me included) are being duped into thinking this educational system is the only way to succeed. I paid a lot of money to be able to put prestigious college stickers on my cars rear window.
I went to undergrad school as a “non-traditional” student starting at the age of 25. The reason for that is another story, but I was working full-time and going to school, so it took me 5 1/2 years to get my degree. Pell grants and scholarships went along way in paying my tuition and fees and the rest I paid out-of-pocket. It took a little longer but I did graduate without any debt.
I started at age 25 and it took me nine years paid for by the VA, my employer and me – while my wife and I were raising four children.
Well you got me there Dick. We only had 2 kids, so I guess I should have finished in less time than you. But we both got there….
So many good points, this article should be posted on all guidance counselor’s office doors 🙂
One comment, you mention the parent’s role – to me this doesn’t get enough air time and thank you for spotlighting. A seventeen year old has little chance of making a good life decision on where to attend with all the competing advice/advertising they’ll encounter in their search. Parents need to play a big role in the final decision. It’s one of the biggest financial decisions of (maybe both) their lives and it comes at a time when they are more concerned about what to wear to Friday’s party.
You are so right. Just because a child graduates high school doesn’t make them an adult. The parents are responsible for guiding them and certainly when it comes to any financial decisions.
We read constantly about people burdened with student loans as if they magically appeared and neither student nor parent knew what was happening over the years in school.
Great article, Greg. I responded to a reader’s question about choosing a physical therapy school with some cost versus value advice. In the PT world, I have a sense of where that ratio stands. For my daughter and her friends, currently making application to college, the answer is more opaque, as you point out. It’s become apparent, however, that academic diligence leading to a good test score is very helpful in bringing down the overall cost.
An interesting option for some: A medical resident shadowing me at work told me he went back to his home country for college because the cost was 10 percent of the U.S. He graduated debt-free.
By the way, the editors may know this article is right on time. The Common App to apply for colleges opened yesterday. My daughter’s email inbox was flooded by schools pitching their attributes.
Another tough choice is Law. What do you do with your kid if he wants to become a lawyer?
A very good article with some excellent advice. But these days, I can’t help wondering how many graduating high school seniors have access to either a community college or state college with low fees and many online classes. I suspect quite a few. It seems it might be wise to consider getting a very low cost undergraduate degree (or at least the first 2 or 3 semesters) before considering student loans. That’d also give the student some time to figure out which degree they’re interested in and what kind of income can be reasonably expected. Taking it a step further, I’d suggest considering getting a low cost undergraduate degree and then get a bigger name on their graduate degree. Even if they need a loan to start college, starting with cheaper state run schools would keep their debt much lower and more manageable.