Unfortunately we do not live in such an ideal society. Education is treated just like another commodity that may be sought at a price. The process of commodification of knowledge then carries with it major implications. Education , in general, is a good investment and is a prerequisite for an increase in productivity, competitiveness and a better standard of material welfare. But like any other investment , education makes economic sense only if its potential rewards are greater than its costs. What is clear is that the cost of education is a factor of how it is financed. To meet the cost of education through cash flows that reduce accumulated savings is quite different than meeting the educational obligations from incurring debt. The simple fact of the matter is that the expected stream of future earnings is directly related to the number of years of schooling as the following diagram makes clear.
What the above diagram illustrates very clearly is the fact that the higher levels of earnings are dominated by college graduates but not the medium levels of ,say, $40,000 per annum. That the major problem associated with the student loan indebtedness is the level of debt relative to the potential earnings of the degree that is being pursued. Borrowing $100,000 to earn a degree whose potential first year earnings is estimated to be $150,000 is very different than borrowing $60,000 in order to become a graduate in a field whose potential first year earnings is estimated to be $35,000. The first one will be a debt load that is easy to handle while the second one will be onerous.
The overall rate of return on a college investment is still very attractive , compared to many other investments, provided that one does not commit to a debt burden that is unsustainable.
