Is there a cost to education? Or is it necessary to get it at any cost? Should the rising university fees stop any one from getting the all important education?? Are student loans a good way of supporting your time at the university? Will the education and the raised living standard “higher salary” counter the cost of education or will student loan eventually be the golden handcuffs that all of us will sport for a long .. long time to come??
I am currently doing some research on Emerging markets and as such have been reading lots of financial news from India and China. While browsing through the financial newspapers, what caught my attention was one of the insignificant financial news, which I thought had profound social implications. The newpaper reported that a bollywood flick ‘Three Idiots’ (http://www.imdb.com/title/tt1187043/ ) was one of the highest grossing foreign films in China! Now although this piece of news finance was not the most eye popping financial news I read that day it certainly is the most socially significant problem in the emerging markets and the story seems to have attracted just as many eyeballs on the other side of the Himalayas. The story of ‘Three Idiots is about students in a engineering school how against all odds are trying to get the education. They come from different backgrounds some rich, some poor battle against all odds and go on to achieve their goals in life. It seems to have hit a nerve in the emerging markets and from what I have seen the story is not that dissimilar in the West either!
In recent years, the UK and Europe in general has seen a lot of student demonstrations against the governments for cutting the aid to higher education which resulted in higher education fees ( this by the way was a direct effect of the sovereign debt crisis, but this blog is about consumer debt / types of personal debts so I wont discuss it any further in this blog ). The student bodies were complaining that the fees were unsustainable and that average student will be have £50000 debt by the time they are done with their university. To make matters worse the government was trying to explain its ‘repayment plan’ ( or the lack of !! ). It said the student will have to pay the loan back only when he / starts earning over £21000 in a year and any balance after 20 years will be written off!!! Now, I don’t know about what my good readers think about this scheme but if there ever was a Ponzi scheme, this is one!!! This is a blueprint for defaults in 20 years time. What the government is saying in no uncertain terms is that students should take loans for studying and in the event of them not getting a job ( which is a very high possibility given that students are being enrolled on courses which have no market value, just so that universities can lay hands on more government aid via the students!! ) they don’t have to pay it back or even if they do get it back the repayment is 11% of their income above £21k i.e. unless a student earns well over £30k from day 1, the repayment will never even cover the interest on the loan let alone the principal!!! And ladies and gentlemen hold your breath, cause if you thought that this has the subprime crisis written all over it, think again, cause atleast in the case of sub-prime crisis, there was a property against which loan was given, hence atleast part of the repayment could be ensured by selling the property, in this case there is no collateral! So if a student doesn’t get a job, then he not only gets jobseekers allowances but also gets his loan money waived off!!! Now many would argues that no one would want that, but to me this is actively encouraging the youth to not work cause if they work their earnings will not be that much higher ( after loan repayment and taxes ) compared to their allowances! From the information I have, governments across Europe and the US are following policies that are not that different from the ones in UK! All this means more pain for the tax payers (yes any one who earns more than £7450 per year ) in coming 20 years!!!
So as usual, by this time, I assume the reader must be thinking, that although most things that he read make some sense, whats the alternative?? Not studying?? Surely that’s worse?? By this time the regular readers of this blog must have guessed that just like in parts 1, 2 and 3 of this series, I will present an alternative. Don’t get me wrong, I am not suggesting that people should not study! Infact I would actively encourage people to study! Liking a subject and then getting as much knowledge as worldly possible can be very rewarding and as I had written in one of my previous blogs ‘Pleasure’ (http://socyberty.com/philosophy/pleasure-the-essence-of-good-life/ ), it can be very satisfying. The question is not if you should study, but how you should study! A dear friend of mine and an inspiration in many ways has lived a debt free life got educated and is one of the happiest man on earth! I am going to tell his story in this blog which is in many ways an alternative to traditional sources of study.
My friend got out of school at the age of 18. He was a decent student and had finished in the top ¼ of his class. During his previous summer holidays, he had worked as a sandwich maker at Subway. Although it wasn’t his favourite job, he decided to go back to do it after finishing school as by this time he had become mates with the stores manager. As he spent more time in the store, he realised that there was lot more to business then just making and selling sandwiches! And the whole business aspect of the franchise fascinated him, and 6 months into his job he decided that business management is his area of interest and that he would pursue it. BBA is normally a three year full time course but a very reputed university does the same course part time in 5 years. He got enrolled in that course. The curriculum was not any different than the full time course, just that there were less modules per semester. My friend worked 4 days full time and attended 9 hours of lectures 1 day every week. He usually had 2 exams and one mini project to be handed in every semester. He finished his course in 5 years and secured a higher second class. However, what I thought was most impressive was that at the age of 23, he had no education loan or any other kind of debt and owned a car and most other luxury items that we can think of! Oh and 5 years into Subway, he was now a manager of the store earning an impressive £23500! per year ( in 2005! ). Infact he had used Subways supply chain management that he had learnt on job as an example of process improvement for manufacturing industries as his final year project! Talk about on job training! When I look at his example, and compare it with the more traditional route of full time bachelors degree, I can clearly see that he at 23 was much better placed than many others that I know. He had a healthy bank balance, a much better understanding of his personal finances, had never suffered lack of money ( as he was always on 4/5th of full time income all through ). Not to mention that he was never out of job and as a result had even managed to progress in what is usually considered as a dead beat job. His degree and years of experience as store manager at Subway helped him to move on to bigger things. He now manages a high street retail store and earns 2-3 times his Subway managers salary. All through living a debt free life! He still doesn’t own a house, but given his income I think he will be able to buy one in less than 10 years!
The point I am trying to stress here is knowledge is important and necessary, but debt isn’t! I think the standard way of getting educated is making people less and less creative. The shackles of debt as soon as they leave university prevent free thought and creativity and happiness that follows get replaced by this instant urge to repay the debt, or to make up for the lost time. Infact I would go so far as to argue that opening up the mind to various new thoughts and ideas which is the very purpose of fruitful education gets well and truly lost in the modern way of acquiring education via a debt ( student loan ). I think my friend is just one example of living debt free ( without student loans ). I can think of many more examples where car mechanics ( mechanical engineers ), waiters ( hospitality ), cooks, office assistants, literature and drama etc can be learnt on job while studying part time. The extra years spent in acquiring will be offset by the years of experience gained ( which based on my personal experiences always counts more in the real world! ). What do my good readers think about this?
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