At the age of eighteen, kids are asked to make two enormous decisions. For one thing, they are expected to have a good enough understanding of what they want to do with their lives to make an educated decision that could follow them all the way to retirement. That’s a lot to ask of someone whose prior work experience begins and ends at Dairy Queen.
They are also asked to fund that education with what will most likely be the largest loan they take out, save for their eventual mortgages.
It’s a wild system, but it’s the one we’ve got. While there’s no changing the stakes of the choice, there are ways to impart its severity to kids who find themselves in the hot seat. In this article, we talk about how kids can maximise the ROI on their degree to avoid taking on ill-advised student loans.
Defining ROI
Obviously, in business terms, ROI has a very specific meaning. It’s the amount of money you get back on an investment. The idea isn’t just to see a good return, but also to (hopefully) see it within a reasonable time frame.
That doesn’t always apply perfectly well to getting your education. In a world where literally half the population reports hating their jobs, it seems important that we not simply tell kids that the online worthwhile gigs are the ones with the highest salaries.
Rather, it may be better to lay out the realities both of getting a degree and then eventually paying for it. There are middle grounds. “Well, no. You don’t have to go pre-law if that isn’t what makes you happy. But have we thought long and hard about what sort of jobs you might get with a degree in interpretive dance?”
When you start talking about future degrees in a strictly dollars and cents capacity, you become uncomfortably like a cliched TV parent, discouraging a kid from following their dreams.
Instead, it’s best to work with your child on balancing their passions with good, practical advice. Encourage them to follow their dreams and dance their interpretive dances. Just make sure that they understand that a degree is an investment, all other factors notwithstanding.
Conventional Wisdom
Did you know that conventional student loan wisdom actually has nothing to do with the degree itself? According to experts, you can major in English, or taxidermy, or the art of blindfolded origami just so long as you follow this one simple rule: Don’t borrow more than you expect to make in one year’s salary post-graduation.
The idea here is that any more than that, and you will be crushed by interest. The degree won’t be worth what you paid for it.
The nice thing about this recommendation – impractical though it may be for many people—is that it gives you more options than simply saying, “Your choices are engineering or, hmmm. Engineering.”
There are lots of ways kids can major in fields that interest them and still follow this rule. For example, if they are interested in becoming a teacher, they may want to choose a school that is relatively affordable.
There are, of course, exceptions to this rule. For example, becoming a doctor or a lawyer can require significantly more loan money than the graduate can expect to make in their first year on the job. These careers typically tend to be worth the investment in the long run anyway because they command very high salaries.
Regardless, the idea is to frame the equation in a way that keeps as many options open as possible. You want the child to feel that they have many opportunities available to them while still encouraging them to make sensible financial decisions.
So, What Careers Yield the Highest ROI?
Just for fun, let’s talk a little bit about what career paths do yield the highest return on investment. Since college costs approximately the same whether you be majoring in English or biostats, the jobs with higher salaries pretty much always come out ahead.
Right now, those positions are dominated by STEM. In fact, the top ten highest-paying majors are almost all variations on engineering. There are the occasional tech jobs sprinkled in as well. Computer science. Data science, etc.
All of these positions will net a lower six-figure salary, putting the degree earner in the top 15-20% of earners in the United States.
However, if STEM isn’t your thing, you can find high-paying gigs in finance, business, and marketing. Even educators can earn sneakily high salaries— particularly when they go in for administrative jobs (which also net six-figure salaries in many parts of the country).
There are lots of ways to earn a good living off your college degree, so encourage students to think outside the box and leave themselves with as many options as possible.
Encourage Them to Avoid Private Loans
To be clear, government loans aren’t great. They do charge interest, and they are one of the only kinds of debt that will follow you through a bankruptcy claim. However, they will feel like a little slice of heaven compared to private loans.
Private loans tend to have much higher interest rates. They may come with predatory conditions if the student isn’t savvy enough to find favourable terms (and since they are eighteen, we’ll guess they probably fall on the wrong side of that equation).
And they may also come with less flexibility in terms of repayment options. One of the first things all borrowers need to understand is that not all loans are created equally. Encourage your student to find the terms best suited to their financial needs.
The good news is that, despite the enormous amount of student debt, people do find lots of ways to make higher education work for them. Grants. Scholarships. Community college. Jobs, that help them pay for their education in real-time to avoid interest later on down the line.
There are lots of ways to get a degree that is fulfilling, and financially sensible.
