Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she's been enrolled in night school, which allows her to defer loan payments.
This is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up.
This is becoming an all too familiar refrain. College kids hopped on the higher education treadmill only to find themselves earning menial wages and drowning in debt. Like homeowners who assumed real estate would always go up in value, Generations X through Z assumed their marketability in the labor force would always go up, especially with more education. Taking out loans for bachelor's degrees, MBAs, and law degrees was the human capital equivalent of a home equity loan for a while.
The trouble with this approach to maximizing one's utility is that indebted college grads now face a job market with permanent impairments. Global wage arbitrage pushes wages in the global North down to those in the South. Corporate indebtedness puts a ceiling on future salary and bonus increases. Sovereign indebtedness puts a floor under future tax assessments. Mix it all together and you have a milieu that will kill off any middle class aspirations in most college grads for decades to come.
Here's an easy acid test. If you need to take out a loan to obtain a degree, you're better off without the degree. Don't become a debt slave in hopes of paying loans off with higher future earnings. Instead, get some affordable skill training and go right to work. Live at home or get a roommate. Eat cheaply. Live simply. Save every penny and invest in things that generate cash flow (index funds, non-leveraged real estate, and resilient communities). Stay away from college and its endowed hucksters until you're financially independent. You'll have something to teach your instructors if you wait long enough.
