First, let's address the idea that student loans can be an investment. Allow me a moment on my soap box here - I have a bit of a pet peeve. I recently wrote about this in the comments of another post:
I think the MBA degree may be a good investment and degrees in general may be good or bad investments, but the student loans are only a method of financing. The student loans are never an investment in and of themselves and if they were they would be a terrible one since they have a negative return.The point is, unless you have an amazing alternative investment and tons of cash (in which case send some of your good luck my way), student loans will NEVER be as good as NOT having student loans. Student loans are not the investment, your degree is. The other important note is that when you leverage debt you are also leveraging risk which reduces the value of your return on investment relative to a safe bet.
Like a mortgage on a house, student loans can only reduce your return on investment since you will be paying significant interest on them eating into any gains you have. In some cases you may still be left with a positive ROI, but it will always be smaller than if you had paid with cash.
The only benefits to student loans, buying on margin, and other debt is their ability to leverage what assets you have to provide greater opportunity. So while you may not be able to get the degree without student loans and obtain the maximum ROI you can still potentially use them to obtain the reduced ROI which is better than no ROI. Debt also allows you to minimize opportunity cost which can be helpful if you can pay for an asset in cash, but could gain a bigger return elsewhere (ie student loans are 7%, but you could get a 16% return elsewhere giving you an over simplified profit of 9% minus fees etc). The latter is not the case for most students, but the former might be if the degree is a good investment.
Okay, now that I'm off my soap box (sort of, am I ever really off my soap box here? I guess that's partly what blogging's about) let's move on to the income side of the argument, the part that says student loans won't matter because I'll be making so much money. Boy, oh boy do I hope these guys are right. I would love to be working in a job I love and making a quarter of a million dollars a year shortly after graduating. I may be frugal but that just makes me better at using large sums of money. ;) I could definitely find a use for that much money without student loans to pay down.
But there is one big problem. Money is never guaranteed. I've met people who graduated from Harvard Business School and Stanford, but could not find a suitable job for months after graduation. I'll agree that it's likely I'll be able to find a well paying job after graduation but it is also in no way guaranteed. The typical starting salaries are also not as lofty as some might think. US News puts Stanford and Harvard at the top of their MBA rankings so they may have some of the highest starting salaries, but the median starting salary at Stanford is $120,000 and Harvard's is $110,000 which is significantly lower than some of the income numbers that have been tossed around on the blog. Sure there are some way bigger numbers on the high end but there are also plenty of numbers way smaller than this. Salaries are also tightly clustered around the median - 50% of Harvard grads have salaries between $100,000 and $125,000, with 25% falling below and 25% above.
So a salary of $120,000 is big, really big compared to the American average, but it's still not enough to make a typical student debt load seem insignificant. A salary of $120,000 isn't enough to make debt of over $70,000 seem insignificant. I'd be scared to have $35,000 of debt on a $60,000 salary or worse $17,500 of debt while only making $30,000. A higher income does mean more truly disposable income, but it also means lifestyle inflation for a lot of people as well as higher taxes. Either way it's still not enough to make your typical student loan burden evaporate.
The income argument also assumes that you'll be making the big bucks for as long as you have student loan balance. To make this true you have to be lucky with layoffs, burnout, and motivation to be in that kind of position. This would need to be 10, 20 or 30 years depending on how your loans are set up and if you just pay your minimum payments or add more (in which case those numbers would all go down). Let's say you graduate from business school at, say, age 28. Worst case scenario you could be just polishing off your student loan payments at age 58! I don't know about you, but I'd kind of like to be in a position to retire if I wanted to before then, which means no debt and fixed payments would be awfully nice.
So to my thinking in the vast majority of business school graduates' financial lives (and I would wager this holds true for medical and law school graduates as well) it absolutely does make sense to worry about student loans and try to avoid them. Particularly once you factor in that with student loans you can end up paying for your degree twice or more.
What do you think? Though I write a lot about student loans for the blog here, I'm hardly in a panic or a lather about them all the time in real life, I just think student debt can be destructive and should be avoided. Am I over reacting?