In today's edition of "no one in politics gets me," I'd like to talk a little about the cost of college. While I'll be the first to say that I'm all for some kind of socialized healthcare (in part because nearly every industrialized nation but the US does it), I can't get on board with the free college thing. I don't understand the problem that it's trying to solve, or even the problem that college solves. This may seem counter to my general advocacy around education, but I'm not convinced that college is the answer that solves some particular problem.
So let me get this out of the way: I know college costs in real dollars have been on the rise for the last two decades, which is to say they significantly outpace inflation (source: US Department of Education). This narrative also often suggests that wages have not increased, which is true, but they have kept pace with inflation for about 40 years (source: Pew Research). I'm going to put all of that aside, because I'm saying the current debt loads being incurred by college grads is in fact manageable with the right budget.
Every figure I'm going to use here on out is in 2018 dollars, using the fed's numbers. Let's start with the basics from the DOE: The average debt for a 2018 graduate was $33,000, and interest rates varied between 3.76% and 4.66%. Let's say that averages at 4.5% even though it would be less. The loan term is 10 years. This puts the payments at $342 per month. Again, we're working with averages here, so don't bother me with anecdotes higher or lower.
I can't find an authoritative source about average starting salaries out of college, but for 2018 the sources tend to average about $50,000. (I found a lot of studies about expectations that put the number at $60k, with a fifth of people expecting $80k!) Let's work with a lower than average salary at $45,000. Assume that 30% comes out for benefits and taxes (and that should even cover a 401k contribution if it's available), and that gets us to a monthly budget of $2,625.
Quicken has a simple budget calculator, so let's use that! I'm going to roll with expenses here in Central Florida, which is generally not bad but the rent here is crazy high, like almost mortgage territory. Let's make some assumptions here: You share a place with a roommate, your car is a new leased Toyota Corolla with nothing down, a functional but inexpensive phone on Google Fi, etc. Here's what I came up with:
|Rent (your half)||$600|
|Renter's Insurance (your half)||$50|
|Utilities (your half)||$150|
|Cable/Internet (your half)||$50|
|Student loan payment (see above)||$342|
|TOTAL:||$2,123 ($502 unbudgeted... save or make extra loan payments!)|
Is this doable? It was for me, because believe it or not I still use the same version of Microsoft Money I did when I was right out of college, and I actually know what I spent money on. It was very nearly this budget, I drove a Toyota Corolla and had a roommate (then-future first wife) who was in grad school, no less. Things were tight for me, but where I went horribly wrong is that I was paying another $200 in credit card debt every month which I was actively replacing with about $200 worth of eating out and buying CD's and DVD's (these small plastic discs that once contained music and movies). I also didn't do any of the saving or retirement account deductions, so I really pissed away a lot of money.
Let's also keep in mind that I went to school for radio/TV and journalism, careers that I abandoned after four years to chase dotcom dreams. I never had any illusions of making a ton of money. Because I went to a private school, my student loan debt was actually more than today's average at $40k (adjusted), and my loans were all at 8%, so my payments were higher, too. My schooling had zero impact on my career: Nobody has ever cared where I went to school, and in recent years, didn't even care that I went at all.
But I digress... I didn't want to get into whether or not college was worth it, I wanted to look at the cost for today's graduate. There are all kinds of variables you could throw in here, like, "But I work in San Francisco!" or whatever. Countless people will say, "But I needed a masters degree, so my student loan debt is twice that!" Sure, we all make choices. I know a lot of MBA's who used to argue that they "needed" that degree to get ahead, but now say they're not ahead because the ROI wasn't there.
I know a ton of software developers who didn't go to college at all making six figures before they're 30. I've met trades people making a comfortable living on $60k a year contracting on their own terms. I know a guy who moved to Nowhere, Montana to work in radio there on $35k a year who lived comfortably. The more I look at the college debt "problem," the more I wonder if the underlying issue is a combination of choices and expectations. I'm not convinced that these factors have significantly changed in 20 years, even if the cost of college has. And if more people go to college, then the pure economics dictate that the cost goes up because of demand while the value of a degree goes down because of market saturation.
I'm digressing again. Tell me why that budget can't work?