Last week I received an email message from a professor at a State University in the Midwest relaying the story of her son, a capable 26 year old with a degree in film from a prestigious California school, and an MFA in Script Writing from somewhere equally impressive. This woman (a PhD herself), said her son "just wanted to make movies" and followed the path that advisors had laid out for him. After two years of trying to find work in Los Angeles, he was moving home to regroup, refuel, and pay down some of his loans which rivaled the cost of a starter home. She said his situation was eerily similar to the title of the documentary I just released: Broke, Busted & Disgusted.
Her son's story is all too familiar -- I've now heard from hundreds of other students who 'went all in' on their degree, only to find out they, too, had gambled against a seemingly stacked deck. At the very least, they were playing a game of high stakes Texas Hold'Em without knowing what they were wagering.
If you Google the word gamble, one of the definitions listed is to take risky action in the hope of a desired result. The well educated scriptwriter was just doing what others before him had probably done, but with better results. But to use the poker analogy -- 'going all in' by financing a high ticket degree and a second high ticket Masters, in hopes of landing the dream gig seems a bit of a gamble -- a risky action in the hope of a desired result.
And yet, we're encouraging young people to take this kind of gamble en masse.
Ten years ago, the very pursuit of a degree was considered to be a sure thing when it came to chasing down success. In essence, it wasn't a gamble at all. The advice of going to school, getting a degree, and getting a job still held up. Today, the risk you're taking is borrowing tens of thousands of dollars for a degree that may or may not land you a job, that may or may not cover your expenses. In rough numbers, we're churning out a couple million graduates a year and only producing about a million jobs, jobs that are paying roughly the same as they were 5-10 years ago.
While I fully believe and support the notion that a degree gives you a greater likelihood of financial and career success in life, if you are going to pursue it, learn to count cards before you take a seat at the table.
Ben Mezrich wrote a book in 2003 entitled Bringing Down The House. It is the story of the MIT Blackjack Team, a group of 6 MIT students who "took Vegas for millions" by counting cards and working tables in teams.
While some of the situations described have been deemed "more fiction than non-fiction", the book is an enthralling read. Mezrich describes these students with tens of thousands of dollars taped to their bodies as they go through airport security, as they work their intricate strategies and as they are chased out of casinos by pit bosses, pulled into dark backrooms, and in some cases beaten. (No one said counting cards was easy!)
But what these certifiable MIT geniuses did is they played the game differently so it was rigged in their favor. And students today could take some pages out of their card-counting playbook when it comes to the gamble of going to college.
The MIT Blackjack Team knew where they were going, who they were up against, and what their entrance and exit strategies were before ever stepping foot in the casino. Similarly, a student should have serious advance knowledge of the college or University they're interested in attending before officially enrolling. Specifically, do you know:
- What percent of students graduate in 4 years?
- What percent transfer after year 1, 2 or 3?
- What is the job placement rate and how quickly do the graduates get placed?
Attending a school because they have a rockwall in the rec center or a lazy river near the dorms (seriously, LSU?) -- these should not be at the top of your "why I came here" list. Choosing a school where your friends are going should also be towards the bottom of your list -- after all, if your friends were gambling $10,000 a hand at the local casino, would you?
The bottom line is, do your homework. Have a thorough working knowledge of the institution before committing to spending the next 25 years paying back your loans. If you can give me 5 legitimate reasons why you've chosen 'College X' over 'University Y & Z', you've done your homework. (Campus close to a beach is not a valid reason.)
What You're Comfortable Wagering
Pro card counters know how much they have in their stack, how much they can afford to lose, and when to bet. When it comes to choosing a college, it seems that students are more concerned about how a particular school "feels" than what the total costs will be. The corresponding result of not having 'a number in mind' is hundreds of thousands of elementary educators with over $60,000-$100,000 in loans.
Knowing what you're comfortable wagering requires that you know in advance what you can expect to make after graduation, how much your living expenses might be, and what your corresponding debt payments would look like. Great card counters know when it's time to leave the table -- the goal is to finish your degree by the time that happens. And yes, I'm suggesting that if you can't get through school before hitting that magic number, you either need to choose a different school, apply for scholarships like it's your job, or save a whole lot more money to prepare yourself for the game.
The general rule of thumb is if your debt is equal to or less than your first year's gross earnings, then it's a manageable amount of debt. Liberal Arts majors could expect to make around $35-40,000 a year, Science or Engineering majors closer to $50-60,000 -- maybe more depending on where they live. If you're looking at borrowing significantly more than your starting salary, you're gambling.
Do you know in advance:
- How much will you owe after obtaining your degree?
- How much will your starting salary be?
- Will you be able to afford your lifestyle AND your student loan payments?
Can you imagine what would've happened had the MIT Blackjack Team just wandered into the casino with a couple hundred thou in chips and started playing with no practice? The book would've been far shorter and the movie '21' (based on the book) far less intense. These people practiced, and practiced, and practiced. They had prior experience and a plan. And I believe to rig the game in your favor you have to have some practice, some experience, and a plan in the game of college. Specifically, there are three areas that can rig the game in your favor: Advance Credits, Financial Planning, and Extra Experiences.
If you have a community college anywhere remotely close to your high school, most have created partnerships allowing students to take college level courses while in high school, all the while earning credits towards their degree. Taking an active approach to this kind of plan could net a student 15-30 credit hours towards their degree at little to no cost. The savings (i.e. chips you'd keep) is anywhere from $10,000-$40,000 or more depending on the college attended. A student that graduates in 4 years with one year's worth of credits already under their belt as a 1st year has rigged the game in their favor.
- Are there community colleges nearby that offer college credit while in high school?
- Do the credits transfer to the college or university you/your child is exploring?
The other option for obtaining credits while in high school is taking AP classes and/or taking CLEP tests which help you get college credit for what you already know. Are they both hard? Yes. Is counting cards hard? Yes. But you can take classes to help you practice for them ultimately giving you a more favorable outcome. See the connection? Not a gamble.
In a recent study done by Junior Achievement, 48% of high school students surveyed believed their parents were paying for college while only 16% of parents (also surveyed) actually were. What happens when students generally assume how one of the most expensive experiences they'll ever have is going to be funded? 1 in 4 student loans defaulting in 2016 should answer that question.
Part of the practice involved in gaming the system in your favor is talking through how college is going to be paid for. The financial planning for college starts when a child is young, ideally at birth, and continues through the high school years. If you're not at least somewhat focused on how to make it through college without a lifetime of debt, you're going to miss out on scholarships, saving opportunities, grants, and college credit classes while in high school. And trust me, your students will not go jump gleefully into scholarship applications without a fundamental understanding of what's at stake (and maybe a bribe or two).
While you're at it, talk to your student about the budget they'll live within during school. Research suggests the majority of students who over-borrow do so for things like living expenses, travel, and entertainment expenses.
There are a plethora of "fee only" financial planners who can help you with the financial plan to pay for school. If you're feeling overwhelmed, get help. Specifically, you should know:
- What is the average aid package for the school?
- What scholarships are offered by the college or the program?
- What will be my EFC (Expected Family Contribution) and how is that impacted?
- How much will have to be borrowed to finance the degree?
College today is more than just pursuing a degree. In fact, ask 100 HR managers what they're looking for in a new hire and 95 will tell you it's not just the degree, but experience they seek. The riskiest bet you can take is to 'go all in' on your degree, borrowing tens of thousands of dollars to do so, and come out with no internships, no side hustles, and no extra experiences.
No matter the school you choose, the practice you're going to get while in school will come from the extra experiences you pursue while there. Your value on the other end of this game is amplified by having some experiences that you can draw from in the working world.
When choosing a school, consider:
- What "extra experiences" can you have at the school? (Travel abroad, internships, etc.)
- What can you do on the side to gain experience?
- What companies partner with the school to offer on-the-job experience while in school?
To minimize the gamble on his degrees, the filmmaker from above with a Masters in Fine Arts should have interned or volunteered with production companies, written multiple scripts and submitted them while in college, and at the very least put together his own productions to showcase his talent. The grads getting hired today have an abundance of extra experiences that have prepared them to do the work they've studied so hard for.
Planning and Execution
At the heart of my message is the need for proper planning and execution. Pursuing a degree is one of the most expensive endeavors a person will take in their life, and the costs continue to spiral upward. Casually approaching college with no plan and half-hearted execution is like stepping into the high stakes area of a casino emboldened because you just learned to play UNO.
Do your research, plan ahead, practice, and take calculated risks, instead of making risky decisions. Whether we're talking about counting cards, or graduating with less debt, with the right planning and execution, perhaps it may turn out to be not such a gamble after all.
Adam Carroll is a financial literacy educator, author and speaker. His programs and books have been used on over 600 college and University campuses across the country. He is the author and co-creator of the documentary Broke, Busted & Disgusted and is a 2-time TEDx presenter on the topic of personal finance. You can find more of him at Adamspeaks.com.