Don’t take out student loans

Karl Denninger explains why students should avoid taking out loans to go to college:

Now I’m going to give you the biggest reason of all not to do it, and it has to do with your personal wealth over time.

It’s simply this: Statistically speaking you will never get rich working for someone else.

So how do you get rich?

So how do you get rich?  You work for yourself.

And don’t forget about the opportunity costs of getting that four-year degree:

Don’t be fooled either by the claim that you “have to” go to college to earn a good living.  That’s a lie.  You can do a number of things that don’t involve college yet make a darn nice living, and give yourself the opportunity for entrepreneurship.  How about plumbing or electrical work?  Both have no college requirement and reasonable apprenticeship or certificate requirements with you actually getting paid to learn the trade instead of the other way around.  There are dozens of others, from various forms of physical labor to intellectual labor such as web design, and the nice thing about all of them is that none require going into debt of any sort in order to gain the “first job”, and most have a direct path into self-employment.

Now let’s look at the economics.  Let’s assume instead of four years in college you instead spend them apprenticing for electrical work.  Let’s further assume you can make $15/hour doing so as an apprentice, then $25/hour once you have the certificate or license.  There are 2,000 working man-hours in a year, assuming 50 weeks of 40 hours and two weeks off for vacation.

So in the first two years you earn $30,000 each, and then $50,000 the next two.  You do not blow all of this on creature comforts nor do you go into debt.  Instead you stash 20% of your gross and live frugally.  In those first four years you have amassed $32,000 in savings and have no debt.

The college graduate, on the other hand, has $52,100 in debt and at the nice low current interest rates will be paying $522.35 a month on graduation.  The problem is that at graduation if he gets a $50,000 a year job he has $4,166 a month in gross income less the $522.35 in loan repayment, or $3,644.32 before taxes.

You, earning $50,000 a year at the same point in time, have $4,166.67 a month in gross income and no debt obligation at all.

I couldn’t have said it better myself.

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Categories: Borrowing, Debt, Education, Opportunity Cost

Tags: , , , ,

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