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Back to School: Education as a High Risk Decision


Back to school season is upon us and I am reminded of the importance of thinking carefully about educational choices and especially the financing of these choices. The higher education landscape has changed in significant ways over the last few decades. As states have chosen to cut higher education budgets, those costs have been passed on to students and their families leaving many with crushing student loan burdens and low-wage jobs.

Individuals now bear the burden of paying these costs so it is important that we make adjustments in the ways that we consider college choices. As a researcher, I can tell you with great confidence that the data shows that college is still worth the cost for most individuals in the population; but as a financial planner, I will also say that whether college pays off for a particular person depends on a variety of circumstances. While some of these circumstances are beyond our control (e.g., state of the economy upon graduation), students can help improve the chances that college pays off for them by doing a few specific things.

Know the graduation rates of the schools you are considering and consider what might prevent you from graduating. Graduating has a big impact on starting wages and, from my research, those who take out student loans and do not graduate face the most precarious financial circumstances.

Explore college majors and starting salaries of those majors. Although I am a big fan of liberal arts education for a variety of reasons, it is absolutely true that majors with less direct connections to career paths typically lead to lower wages. The new landscape requires that you at least consider this. If you are going to major in something like history or art, know that the next point on this list will be much more important than if you major in engineering or personal financial planning.

Have a spending plan and borrow only for tuition and fees (to the extent possible). One of the most significant mistakes I see students making is using student loans for a better lifestyle while in college. Using student loans to get nicer housing, better food and drink, or vacationing while in college is a sure way to limit your options in the future. It is much easier to live like a college student while in college than when you are a young professional!

Get advice. We all have a tendency to be overly optimistic in our assessment of our own abilities and it is true that “you don’t know what you don’t know.” Overestimating your likelihood of graduating or your starting salary can have a big impact on your financial wellness for years to come, so ask for help! The new landscape requires it.