While higher education has many benefits for a student's credentials and job opportunities, other considerations are necessary when investing in education. One of the more overlooked topics is future career earnings. Accumulating too much student loan debt in respects to career earnings can create financial distress.
Education in America
As occupations increase specialization, the need for extensive education is growing. In years past, a four year bachelor's degree in business was sufficient to secure a respectable job. Today, the need for increased job security and opportunity has pushed many students to complete their MBA.
Health professions, such as occupational therapy and physical therapy, needed only a 4 year bachelor's degree in the late 1990s. Today, that same degree requires a Master's and is currently transitioning to a seven year doctorate program. Universities looking to hire professors often require a PhD in their respected field, forcing interested candidates to commit tens of thousands of dollars and several years towards the goal.
Investing in a College Education
Kathy Kristof, writer for Forbes Magazine, reported in her February 2009 article, "The Great College Hoax," that the cost of education is "misleading" at times in respects to the return on investment. The article sheds light on the statement that "a diploma will increase earning potential by $1 million over a lifetime.
Thousands of students each year pursue law degrees, an occupation that traditionally pays very well. According to Concord Law School in 2006, the average lawyer makes over $100,000 a year. A career path as a lawyer takes about seven years of schooling, resulting in "average loans of around $100,000," as indicated by Kristof.
Even though the loan payments may be over $1,000 each month, the potential income of a lawyer is still tremendous. Furthermore, lawyers can establish a lucrative practice without the need for heavy upfront capital, such as in retail, construction, or healthcare. The value of a lawyer's time has tremendous monetary benefit, similar to that of physicians. Therefore, the time and financial investment have strong chance of meeting the rewards in years to come.
Investing Poorly in Education
Kathy Krisof's article demonstrates the negative effects of expensive college educations in relation to the future. A social worker requires a minimum four year bachelor's degree but many companies are requiring an additional two year master's to apply. While this degree provides a desired and necessary service to the community, over the course of six years at a private school a student can rack up a debt close to that of a lawyer.
For the purposes of this example, consider the affect of $50,000 in accumulated loans pursuing a social worker career. According to SalaryWizard.com, the average social worker makes about $44,000 a year with the top 25% only making $48,000. Assuming the loans are at 7%, students will owe $388 a month for the next twenty years.
Liz Weston, author of "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," suggests that students should pay no more than "10% of gross income towards student loans." Following this advice, to validate this investment a social worker would have to make over $59,000 a year. Very few make over $50,000 making this career choice a very bad investment. Having loans that exceed $100,000 will keep a social worker in debt they will never climb out of.
The Future of Education
By no means does this statement suggest that everyone should get law degrees and social work is a horrible job. This comparison suggests that investing in an education, if not properly weighted, can cause decades of financial distress. Happiness with a job is extremely important for long term success but the frustrations that an occupation cannot pay off loans significantly lessens that enjoyment. It is important to completely understand the financial implications of an education before spending taking on considerable loans to purse a dream career.
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Keith Cronin - Keith is a physical therapist in the St. Louis area and enjoys writing on the topics of health, sports, and education. Keith provides ...
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