Episode 119: CRUSHED: How Student Debt Has Impaired A Generation And What To Do About It with David Linton, Author of CRUSHED: How Student Debt Has Impaired A Generation And What To Do About It
David Linton is an author and economist. Mr. Linton is a Faculty Lecturer at the University of Texas McCombs School of Business, where he teaches Investment Management, and he is a former professor at the University of Southern California’s Marshall School of Business. His first book, Foundations of Investment Management, has become a popular read among young professionals who want to bridge the gap between an academic understanding and the practical application of investment management strategies.
The full title of Mr. Linton’s second book is Crushed, How Student Debt has Impaired and Generation and What to Do About It. Mr. Linton had the idea of writing this book while wondering the beautiful campuses including USC or UT Austin, and Mr. Linton couldn’t help but wonder: why are college campuses so nice? Why is college so expensive? How am I possibly going to afford to send my three kids to college? And how can we fix the whole mess of student debt?
Where is the college money going to and how much of it is going towards students?
From the Department of Education and several others that can be looked at the categories, and how those category expenses have increased over time. These categories consist of student instruction, administration, campus facilities, research, public service, and all kinds of things like this. What we find is that each one of these categories continued to grow and inflate plus a certain amount since 1940. For example, if you are taking a pie then you can see when slicing it, those pies kind of wiggle around but the whole pie is getting bigger every year. You can say that soon instruction may have grown and inflation plus 2% administration vap and inflation plus 2 and a half, campus facilities, inflation plus 2 and a half research inflation plus 2. There is a lot of variability by institution. In each one of these categories when you drill down, you can learn something interesting about what’s going on and then when you look at it from a completely different dimension, you can come up with many explanations as to why this is happening.
What are the emotional aspects and investment when sending a student to college and what should a parent do when making a decision?
This is very philosophical and also can even be a very religious question because you will truly never know and have to take take the leap of faith. What you can do is apply a certain frame and have the first set of questions be going to what college and what do you want to college, and then how much can you afford? You then intersect all of these things and try to make the best decision possible. First, have the student list out what colleges they want to apply to and make sure that they are ready to go to college and that they feel like they are ready for college. Some of those things include grades and academics, and if they like studying, and if they are self-motivated because one of the worst things that can happen is you spend all this money and you shut them to a college, and then they drop out, having spent money. Step 1 is if they are ready to earn the degree and step 2 is after figuring out the financial constraints, which is the best institution they can go to where parents think they can be the most successful. This is the middle ground that every student and parent needs to figure out. At one end of the spectrum, there is the option to go to the most procedure school, and at the other end is to go to the school where you will have the highest degree of confidence that your kid will be successful.
How to financially help a student when they change their major?
When going to college, the student can pick any major they like but in most cases, they will end up changing their major and thus lose credits and be behind on their graduation track on top of spending more money for classes. David’s view on this is to let the students pursue what they want but if they are not getting a STEM degree as their major, then they can do that as a minor. One of the worst things that can happen to a student other than going to college and not getting their degree, is going to a college and then discovering that the incremental earning due to that degree is insufficiently large that have justified the cost of that degree. The data is pretty clear that if you have a stem degree or you have an accounting, business, finance, or architecture as something, then you are on one financial trajectory and if you don't have one of those degrees, you're on a very different financial trajectory. Given the financial investment that education constitutes today, if you look at it only through the investment lens, you have to make sure you have a positive return on that investment. This eliminates a lot of majors out there. It's not economically viable to go and get a degree or spend a quarter of $1 million for something that doesn't have a material earnings potential. Even converting their current major to a minor and completing the new major on time is fine. If they can't, they will consider completing that major, and then picking up a minor in order to feel the study they think they would actually like to go into.
Contact David Linton
LinkedIn: https://www.linkedin.com/in/david-linton-cfa-a76266b/
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