How To Deal With The $1 Trillion Student Loan Crisis

Jan 20 2014, 8:46am CST | by

How To Deal With The $1 Trillion Student Loan Crisis

Want to go to college? Prove it: Make a business plan.

In the real world, if you want precious resources to start a company, expand a division or even hire a few interns, you have to fight for them. Hard. That means making your case to those who hold the purse strings. No sound plan? No soup for you.

Why shouldn’t the same logic apply to six-figure investments in college degrees?

This is no ivory-tower debate. Like it or not, the student-loan crisis is everyone’s crisis now. With $1 trillion of student debt outstanding, or triple the amount just a decade ago (see chart below), spending on big-ticket items like homes and cars is likely to suffer, putting a drag on the tenuous economic recovery. Every student, educator, parent and taxpayer has a stake in this issue.

A modest proposal: All college applicants—even those not seeking financial aid—should be required to present a personal, 10-page business plan that illustrates how they’ll put the value of their education to work. That includes studying an industry (or maybe a few) and calculating the potential return on the investment required to succeed within it.

Like all useful business plans, these personal versions would communicate three things: vision, strategy and feasibility. Translation: “What do I want?”, “How do I get there?”, and “What are my chances (and what’s Plan B if I don’t succeed)?” The analysis would be replete with an executive summary, market research and financial projections—nothing too fancy, but enough to clearly address the main risks and rewards.

That’s not all. Business plans are living documents. As conditions change, so must the plan. That’s why students should also be required to amend—and defend—their plans at the end of each year before being allowed to move on to the next year of their college curriculum.

I’m not suggesting that college admission or advancement hinge wholly on these presentations. I’m saying that every student should be made to go through the process—in considerable depth, preferably with the help of a skilled advisor—and have ample opportunity to contemplate the ramifications of making sizable, long-term investments. While they’re at it, students should also create their own theoretical retirement savings plans.

What if the analysis ultimately discourages students from pursuing traditional four-year college degrees, at least until they get things sorted out a bit more? For some, that might be the best long-term financial move they ever make.

In 1998 I wrote an article for Forbes—called “Gearheads Wanted”—about the dearth of skilled machinists in the U.S. despite the profession’s many rewards, including (in those dollars) potential six-figure salaries. Sixteen years later, many skills gaps still exist—even as universities churn out more diplomas. In 2012, one third of Americans ages 25 to 29 had attained a bachelor’s degree or better, compared with just a quarter in 1995, according to the National Center for Education Statistics. Hopefully more employers will wise up and offer apprenticeship programs, in various disciplines, for industrious youngsters who can’t justify four-year-college ticket prices.

What about all the art-history majors with dubious plans? At least they’ll know the true price of their art.

Have thoughts on preparing future generations to thrive in the global economy? Please share your comments.

Source: Forbes Auto


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