Yesterday a friend forwarded me a tweet from Bernie Sanders. It showed a pure lack of understanding of the basic fundamentals of economics.
Here was that tweet…
Though I’m sure liberals cheered.
Liberals might say… “Damn right! We incentivize auto manufacturers and big banks by providing cheap credit while bankrupting our poor students.”
You can think that all you want, but it’s really the free market that is determining these interest rates.
The problem with student loans and why it should and will continue to have higher interest rates is it is uncollateralized debt. Meaning if the borrower defaults there is no underlying asset to recover.
If you stop paying your mortgage the bank can foreclose and take back the underlying asset, the house. Most lenders also require you to put 20% down. During the real estate boom they got away from that and got burned.
So if a mortgage goes unpaid the bank should be able to recoup most of its money. In some cases they may even make money on a foreclosure.
Student loans require no down payment. Plus the bank can’t re-sell your degree if you default.
The fact that Sanders doesn’t get this is not only stupid… It’s downright terrifying.
Actually, it’s pretty amazing to me that student loans are as cheap as they are. The interest rates on student loans are 6-7%, but the default rates are around 14%.
This all leads me into a bigger issue I have with college, student loans, and higher education in general. To me this is the real student loan scam, and it has nothing to do with interest rates.
The “Free College” Bernie Sanders wants will do very little to help individuals earn more money.
People are often shocked to hear me say this, but I don’t care if my son goes to college or not.
As many of you know I live in Florida. They have a great pre-paid college program. Basically you can pay today for your child’s future college education.
When I enrolled my son it was about $27,000 for a 4 year State University degree. You can pay this as a lump sum or set up a payment plan.
Looking at the current costs and potential future costs of college this is a great deal. Especially if you want your son or daughter to attend college.
So why would I buy this? I bought this as a safety net for my son. Should he decide that he wants a college degree I don’t want him to take on a ton of debt to get one. The brain washing over college education has become so strong I may not be able to convince him to avoid it.
However, I know for a fact that he does not need a degree to become successful and neither does your son or daughter.
We’ve created this illusion that somehow this mystical piece of paper is your key to prosperity. If you don’t have one you’re signing yourself up for a life of roach infested apartments and cheap boxed dinners.
People will site studies, put out by universities, showing how college graduates earn more over their lifetimes. What they fail to point out is the glaring selection bias. The smarter kids tend to go to college, and usually it’s smarter people who earn more money.
These heavily flawed studies have tricked generations of young adults to take on massive debt for useless pieces of paper. They’ve also tricked parents to convince their kids that this is a good idea.
Really $100k in debt for and English or History degree! Or $60k in debt for a business degree from an online university!
We’ve done these young adults a major disservice. Not only are they not going to get ahead. They’ve been saddled with debt they may never get out of.
This is the REAL tragedy.
So what should a young guy or gal do to get ahead?
My first piece of advice would be to go out and get a job in a field that interests you. Look for companies in that industry.
You may not get the job you want right away, but get your foot in the door and learn on the job. You’ll learn way more on the job then you ever would in the classroom. I’d even offer to work for free if that’s what it takes.
Working for free sucks, but you know what sucks even more… $100k in debt.
Also understand that you will hear the word “NO”. Don’t let this get you down. Be persistent. If you don’t have or can’t develop this trait you have zero chance of being successful regardless of what degree you have.
Don’t think this can actually be done? I’m living proof that this is not only possible, but can be done rather quickly.
I too bought into the college myth and got a four year degree in Health Care Administration. There was one problem… After I graduated I realized I hated it.
I had an interest in marketing so I got a customer service job with an online publisher. The job paid me $20k a year to answer emails and the phones. I was making a lousy salary and lived in a small crappy apartment with two other roommates.
However this job provided an incredible opportunity. It allowed me to learn about their customers and what they responded too. I volunteered to take on projects and opportunities within the marketing department. I learned on the job.
Within 5 years I was director of marketing for the company that was now doing $25 million annually in sales. Today I own several of my own internet publishing companies and live a dream life.
This can be done. I’m living proof.
If your son or daughter absolutely insists on going to school I’d recommend learning a specific trade. This can include anything from plumbing, auto-repair, carpentry, or even “academic trades” like nursing, accounting, or engineering.
These are actual skills that businesses need and pay for. Many of them can even allow you to start your own business.
I find it humorous how some people view some of these trades as lower class. Are you kidding me!?
One of my best friends is a plumber. I’d venture to guess he earns more than 90% of people with college degrees. The best part is he learned as an apprentice. While me and my other friends were off spending tens of thousands of dollars in college he was getting PAID to learn an ACTUAL skill.
If getting your hands dirty isn’t your thing there are plenty of “white collar” trades. You can learn graphic design, programming, and coding. These skills can be learned for free online.
If after everything I said you still insist on getting a traditional college degree. Here is a strategy that will save you a ton of money.
For starters make sure you get your degree from a school people have heard of. “I’ve Never Heard of University Online” is a total waste of money. If online classes are important to you, there are real universities offering more online classes than ever.
Second, make sure you are learning a hirable academic skill. This can be accounting, nursing, medicine, engineering, actuarial sciences, etc. Don’t get a History or English degree unless you plan on being a teacher.
The third thing, and this is where you’ll save a ton of money, is start out at a cheaper community college. No one cares or even knows that you didn’t go to a school for 4 years. It’s all about the name on the final degree.
There are even many universities that guarantee admission to graduates of the local community colleges. Find out if you’re desired university offers this and go to that community college first.
A buddy of mine from college transferred to Harvard after his sophomore year. He now has a Harvard degree. His employer doesn’t know that he only paid for two years of Harvard.
College education is not the answer to your child’s future financial woes. It’s the cause of them. If you care about your kids and grandchildren share these 3 things with them.
1) You do NOT need a college degree to be successful
2) Avoid the student loan trap and scam
3) If you absolutely must get a college degree learn an actual skill and get it as cheaply as you possibly can
Thanks for reading today. I’ll get off my soap box.
What are your thoughts? Am I right? Or do you think college is the answer?