In summary, there are strikingly different effects of debt for youth from different class origins. Mastery and self-esteem are buoyed by both education and credit-card debt for the lower class – those who have the least access to credit and the fewest alternative resources. The middle class also gets a lift in their mastery and esteem from holding credit-card debt. The upper class, however, is essentially unmoved by debt, with no effect on their self-concept. The impact of debt thus appears to vary by the amount of other resources available, which affects the relative value of debt as a means to achieve investment or consumption goals.
But this is a fraud upon those lower and middle class people, because debt taken to consume does not actually achieve a goal, it merely time-shifts it and applies a penalty. Since all lending comes with interest, the consumption you take on today through debt cannot be taken on tomorrow and you pay a penalty rate for your enjoyment today. This "aspirational achievement" is thus a fraud; it is not real.
As an "investment" there is more of an argument for it, but only if the investment pays. And as I noted early on in this piece, that's a problem.
We can easily compute the impact for any graduate in delta. Remembering that the baseline scenario is that someone who borrows $120,000 for a house needs about $40,000 in income to do so with a reasonable reserve and safety along with a 20% down payment saved (that is, the house is $150,000 of which $120k is financed)
We do this by taking the difference between the front and back end ratios and discounting it by the amount of student loan payments post-graduation. The amortization for student loans is typically 10 years and we can use a blended subsidized and non-subsidized interest rate of 5%. So if the "average" 2009 graduate comes out with $15,000 in debt that amortizes to $158.44 a month; discounted at 8% (front and back end ratio differential) you now need to earn $1,980 a month more having gotten the degree in order to simply cover the differential financing cost, or almost $24,000 a year.
Does this work for the average Bachelor's degree holder? Maybe. But remember that you must also manage to save the 20% down payment, and with the debt service that's going to be tougher. Discount as appropriate for that; let's simply add another $3,000 annually to make $27,000 in additional earnings straight out of college.
That might work but if the debt you take is four times that, or $60,000, it simply will not work. You now need well north of $100,000 in initial salary coming out of college in order to make the math add up and for someone starting out with a four-year Bachelors it is a near-certainty that they will not achieve this salary.
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