Impact of Student Loans on Life

From: alexhormozi

The decision to pursue a college education often involves considering significant student loan debt, which can have a profound economic and career impact throughout an individual’s life [00:00:00]. This article explores the implications of student loans, weighing their costs against potential benefits.

Rising Costs and Escalating Debt

The cost of college tuition has doubled in recent decades, while the median starting salary has remained largely the same [00:00:44]. This disparity has led to a significant increase in national student loan debt, which currently stands at $1.76 trillion [00:01:04]. This amount exceeds the GDP of most countries worldwide, highlighting the immense financial burden young adults are taking on [00:01:08].

Characteristics of Student Loan Debt

Student loans are particularly burdensome due to two main characteristics:

• High Interest Rates: The interest rates on student loans can be high [00:03:17]. A $250,000loan,forexample,canresultintotalrepaymentsof$400,000 to $500,000 in post-tax money over a career due to interest [00:04:54].
• Non-Dischargeable in Bankruptcy: Unlike most other forms of debt, student loans cannot be discharged through bankruptcy [00:03:21]. This means borrowers are legally obligated to pay them back for the rest of their lives [00:03:25], a decision often made at age 18 without full comprehension of the financial scope [00:04:42]. This aligns with a challenging philosophy on debt and financial risk management.

Impact on Lifestyle and Life Stages

The burden of student loan payments can significantly affect major life milestones and overall lifestyle. Borrowers are typically saddled with large payments for a long period, which can delay or complicate:

• Starting a family [00:05:28]
• Getting married [00:05:31]
• Buying a first home [00:05:31]

While earnings may increase in the late 30s and early 40s, the persistent drag of student loan debt and interest can diminish the actual financial benefit [00:06:10]. The higher the degree, the longer it might take to recoup the investment and begin earning more than a less educated counterpart [00:05:56].

Lifetime Earnings vs. Cost

While a college degree generally leads to higher median lifetime earnings (e.g., a bachelor’s degree at $2.2million,amaste{r}^{\prime }sat$2.6 million, and a professional degree at $3.6million,comparedtoahighschooldiplomaat$1.3 million) [00:03:33], the key question is whether this increase is worth the cost [00:07:37].

The speaker highlights Warren Buffett’s investment principle: the difference between what you pay and what you get [00:07:49]. A higher income is less attractive if it comes with perpetual, substantial debt payments [00:08:21].

Furthermore, statistics show that higher degrees do not guarantee superior earnings compared to those with less education. For example, 27% of people with a doctoral degree still don’t make more than people with a bachelor’s degree [00:08:40].

Personal Experience and Business Perspective

The speaker, who attended Vanderbilt (a top-ranked university) and graduated with honors [00:01:31], later chose not to pursue a Harvard Business School education despite qualifying, precisely due to the cost [00:01:47]. Instead, they used the potential tuition money ($250,000)tostartabusiness,whichledtosignificantsuccess(owningaportfolioofcompaniesdoingover$200 million/year and employing over a thousand people) [00:01:59].

From a business owner’s perspective, formal education (school, major, GPA) is often irrelevant [00:02:39]. What matters is experience and the likelihood of performing a job well [00:02:46]. Many modern jobs lack corresponding school degrees [00:02:49].

Nuance and Specific Scenarios

The value of college and the associated debt depends on several factors:

• Intended Industry: Formal education makes a significant difference in fields like science, technology, health professional roles (doctors), and managerial/professional careers [00:09:28]. For personal services, blue-collar jobs, health support, sales, or office roles, higher education makes less of a difference [00:09:19].
• Socioeconomic Status: For individuals from lower socioeconomic backgrounds or those who are the first in their family to attend college, the value add is significant [00:11:00]. College can figuratively change one’s “zip code” by altering environment and social circles, which predicts earning income better than IQ or other factors [00:11:47]. This impact of social circle on financial success can be life-changing.
• Financial Aid/Scholarships: If college can be attended for free or at a significantly reduced cost (e.g., through FAFSA, grants, merit-based scholarships), it offers all the upside without the downside of debt [00:15:56]. Some states also offer bachelor’s degrees for free [00:16:09].
• Prestige of Institution: Attending an Ivy League or a top 20 school (e.g., Harvard, Princeton, Stanford, Yale) can be worth the cost due to the personal brand impact and access to networks that become the “ruling class” [00:16:29]. These institutions often have generous endowments, providing significant financial aid for those not from wealthy backgrounds, making the trade even more worthwhile [00:18:19].

Maximizing the College Path

If attending college, especially with financial aid, consider these strategies:

• Treat Learning as a Job: Students are paying to learn, so treat education as a professional endeavor [00:26:53].
• Maximize Credits: Take 18-21 credits per semester instead of the minimum 12 [00:27:17].
• Accelerate Graduation: Aim to graduate in 2 or 3 years, perhaps by attending summer school, to save time and money [00:27:26].
• Network Extensively: Actively join social clubs, fraternities, and sororities to expand your network and expose yourself to diverse opinions and people [00:26:17]. This enhances your social circle’s impact on financial success.

Alternative Path: Investing in Self-Education and Experience

For those who choose not to go to college, or if college doesn’t offer a strong value proposition, the alternative path requires prioritizing self-education and gaining real-world experience [00:22:22].

• Continuous Learning: Dedicate time and resources to learn, even if it means starting at minimum wage [00:22:28]. Pay people with desired skills to teach, buy courses, or consume relevant content [00:23:04].
• Gain Experience: Companies today prioritize experience over degrees [00:21:55]. The first few years of a career should be about learning and gaining skills, not necessarily getting rich [00:23:58].
• Embrace Humility: Be willing to learn from those who may be less formally educated or polished [00:24:25].
• Define Your Path: Do not expect college to provide a life plan [00:21:01]. Understand business departments and roles to find what aligns with personal interests [00:21:37].

Regardless of the chosen path, the underlying principle for success is to prioritize learning [00:27:40]. Whether as a professional student or a professional who learns on the job, continuous education is paramount for future earning potential and overall long-term investment in oneself [00:27:50]. This emphasizes the importance of balancing life priorities and financial goals.