Thinking of borrowing for college? Don't do it: It's far too risky, far too expensive and, in many cases, a waste of money.
These are strong, unexpected words coming from a college professor and economist. To be clear, I'm not saying anyone should give up on getting a college degree. But there is a much cheaper college route — and it doesn't require becoming indentured to a ruthless, unforgiving lender, namely Uncle Sam.
Think about it: How many of us would borrow at a high to super-high interest rate for the opportunity to invest in something with a 40% chance of a complete loss? Not many.
But 18-year-olds face these odds when they borrow for college. Two in 5 will enter the hallowed halls of academia only to drop out. The majority will have borrowed for the privilege. As for college graduates, over two-thirds will leave in debt.
These "parent" loans likely represent additional borrowing by the children as the parents either guilt their children into repaying or extract repayment in the form of leaving a smaller bequest to their children.
Given that the true borrower of "parent" loans is unclear, no one knows the full extent and distribution of informal plus formal student debt. Today's college students are graduating with close to $33,000, on average, in formal student loans. About one in seven formally owe over $50,000.
Uncle Sam is now charging college students interest at 3.74% on their borrowing, up to a four-year maximum of $32,500. But there's no limit on what he will lend to "parents." And the current rate on "parent" loans is 6.28%! That's over four percentage points higher than what Uncle Sam pays when he borrows long-term.
It's more than possible to get a college degree without directly or indirectly borrowing potentially crazy large amounts at crazy high rates.
There are thousands of colleges and universities. Find one that's cheap. That may mean attending a community college for three years and transferring to a better school as a senior.
Or you can work for a couple of years to save up for college and establish the fact that you are independent of your parents and shouldn't lose grants or scholarships because of their income.
Another option: Attend community college, but simultaneously taking inexpensive online graded courses that provide certificates. A range of elite schools, including MIT, Harvard, Stanford, and my employer — Boston University — offer such courses.
For example, if you're a resident of Iowa, you can get a University of Iowa degree for less than $25,000 per year and an online Yale education. The extra costs to study online at Yale, with completion certificates including grades? Next to nothing.
Then, in applying for jobs, you can state on your resume that you graduated from Iowa, but studied at Yale. This is worth codifying a secret: Get the best of both worlds — a cheap, debt-free degree and a super expensive education.
Do what it takes, short of borrowing, to attend college if that's your goal. But also know that two-thirds of Americans are leading full and highly productive lives without the aid of a college diploma lost in a box in the attic.
If you're from a low- or middle-income family, colleges with high prices may end up being cheap because the net price they would charge you is very low. It's important to comparison shop to understand each school's net price.
Parents need to take steps early to limit at least the specific assets, if not the income, that will raise their children's net college price given what enters the government's needs-based formula.
And applicants must form their own research-based rankings of the departments of interest in the schools to which they apply. National rankings lists are popularity polls; they aren't serious comparisons of research excellent — which, in the end, is the basis of outstanding teaching.
It's time for Uncle Sam to stop exploiting America's youth for trying to get a higher education.
I believe that students should be allowed to borrow on the same terms as Sam lends long-term (i.e., at the 30-year Treasury bond rate). And student loans should be treated the same as other I.O.U.s when it comes to refinance and discharge through bankruptcy.
Yes, this will mean lower proceeds from bleeding students dry. But Uncle Sam can content himself with helping destroy our children's climate and leaving them official and unofficial fiscal obligations far beyond their capacity to pay.
That's surely sufficient malfeasance and malevolence for any good uncle.
Laurence J. Kotlikoff is an economics professor and the author of "Money Magic: An Economist's Secrets to More Money, Less Risk, and a Better Life." He received his Ph.D. from Harvard University in 1977. His columns have appeared in The New York Times, WSJ, Bloomberg and The Financial Times. In 2014, The Economist named him one of the world's 25 most influential economists. Follow Laurence on Twitter @Kotlikoff.