Reconsidering the cost of education
Making the wrong choice can have a profound negative impact on long-term savings
Among his many talents, founding father Benjamin Franklin had a knack for getting to the core of transcendent issues of his times and remarkably ours too. The self-taught Franklin became a success because he understood rightly in the 18th century that “the only thing more expensive than education is ignorance.”
In this first quarter of the 21st century, with the costs of a college education continually rising, there is a worthy caveat: at what cost? In a country full of bargain shoppers who seek the best car deal or endlessly research saving a few basis points on a mutual fund, many ignore the reality of what we ask of financially vulnerable teenagers: take on tens of thousands of dollars in student loan debt the equivalent of a small mortgage in order to get a four-year college degree.
Since meeting the educational needs of the Baby Boom generation in the 1960s, the overwhelming institutional and cultural bias has been that everyone should get a college education. We may long ago have passed the point of false worship. If a college education is supposed to be a launching pad for acquiring competitive skills in the global marketplace, why do we rarely evaluate education for its actual value, especially when that cost can be financially corrosive to many students and their families?
According to recent Federal Reserve research, the total amount of student loan debt of 44.2 million Americans is $1.44 trillion — $260 billion more than the nation’s combined credit card debt. In any other context, we would be discussing a looming financial bubble with a loan default rate of 11.2 percent (90 days delinquent or in default). But the country unwisely treats student debt as a cost of doing business.
This may be fine for the education system or loan providers but not so good for the economy or those young adults burdened with debt.
Since the early 1970s and the dramatic economic hollowing out of the blue-collar middle class in this country, there has been a shift in the national psyche toward treating trade, community college, technical school and work as an afterthought.
It is not only economically inefficient but also self-destructive because the shortage of highly paid tradespeople — plumbers, electricians, welders, health care providers, HVAC technicians and production technicians who don’t need four-year degrees — is acute.
The trend is changing in part due to economic demands and enlightened policies in states like New Hampshire and California. According to a recent NPR story on changing trends in vocational education, California is spending $6 million to rebrand its community college programs and $200 million to better deliver its programs. As one welding instructor put it, “I’m a survivor of the teardown mode of the ‘70s and ‘80s — that college-for-all thing.”
In New Hampshire, community colleges like Great Bay Community College in Portsmouth work closely with major manufacturing corporations like BAE Systems and Albany International on advanced composite materials certification, or Exeter Hospital on an accelerated medical assistant program.
They are training students just out of high school to work for Lonza Biologics as well as veterans and older adults whose jobs have been displaced. According to 2016 Community College System of New Hampshire figures, 16 percent of graduates have moved up the economic ladder from the bottom fifth to the top fifth of earning adults while the national average is 10 percent.
Furthermore, these contributors to society have the lowest loan default rate in New England.
These educational choices matter because in a restrained return environment, making the wrong educational choice can have a profound negative impact on long-term savings. If you’re a parent, would you rather have your child saving $351 a month for the future or paying what is now the average monthly student loan payment for decades?
As Benjamin Franklin also said, “an investment in knowledge pays the best interest” but that investment can come via a variety of personal and professional paths as Franklin himself proved with his extraordinary life.
Tom Sedoric, managing director-investments of The Sedoric Group of Wells Fargo Advisors, Portsmouth, can be reached at 603-430-8000 or thesedoricgroup.com. D. Casey Snyder is a financial consultant with the firm.