Some Career Advice If You're Thinking of Returning to School

A week-and-a-half ago, I left a comment on AllFinancialMatters blog in response to one of his reader's asking if he should go back to school and, if so, whether he should raid his 401k or take out a student loan. Greg Mankiw linked to my comment last week and JLP of AllFinancialMatters liked it enough he just gave it a post of its own.

Here is the original question:

After pondering my poor paycheck and job prospects, I’ve been contemplating a return to college, majoring in either business or engineering. The main problem is money. I plan on returning to college in January, 2009, but I’ll only have about $6000 in my savings and my 401(k) money. I have no debt right now, and no family to provide for, so that’s not a problem. However, it took me years to pay off debt that I incurred in college the first time around (mostly credit cards and an auto loan), so I’m terrified of any debt.

And this is the problem: for me to go back to college, I’ll either need to tap my 401(k) or take out loans. I do not want to tap my 401(k) at all, but the prospect of going back into debt kind of paralyzes me. I hope to work part-time while going to school full-time, but that would only cover rent and not tuition (that is, if I can find a job where I’ll be attending college).

Should I be so scared of student loan debt, considering that it’s not an auto loan or a credit card bill? Do you know if any of your readers have been in a similar quandary?

And here is what I wrote:

I have gone through a somewhat similar process — although maybe in reverse? I studied mechanical engineering as an undergrad and worked as an engineer for over a decade. During that time, I got an MBA in a part-time program and fell in love with economics. I was debt-free, had no mortgage to pay, and no family to feed and always wanted to teach college. So I made the plunge and am currently working on my PhD in Economics full-time and qualified for a fellowship for my school’s dual PhD/JD (law degree) program. I just finished my third year of my PhD and first year of law school.

Here are a few words of advice from my own journey:

1) If you don’t have any debt and don’t enjoy what you do, change. There’s no reason you have to stay where you are. Be wise with your move and make sure you have your next landing pad before making the jump, but don’t feel trapped into staying where you are. Remember, there are a ton of ways to make a live a comfortable life in the US and many of them do not require a new degree.

2) Read The Adventures of Johnny Bunko* by Daniel Pink. It has some of the best career advice I’ve ever read and is written in the form of a comic book. You can easily read it in an hour.

3) Have a clear definition of your goal. Studying “business or engineering” is a very broad goal. Specify. Have a clear idea in mind. If you already have your master’s in English, why not consider an MBA? It will probably take less time than a second bachelor’s degree and require much less make-up work than transitioning from English into engineering. (Unless you have a very strong mathematical background.) Having a clear goal is particularly important for helping make sure you complete whatever program you start. Going back to school after having been out for a while can be a bit of a shock. (Trust me, I know!)

4) Pay attention to the accreditation of the school. For good or for ill, this matters to the marketplace. If you study engineering, make sure it is at an ABET accredited school. If you study business, make sure it is at an AACSB accredited school. Particularly for business schools, there are a lot of schools out there that offer the promise of an additional degree – particularly business ones. I have had several friends go to them and they usually end up stuck with a lot of debt and little return on the time and money they invested into their extra education.

5) If you go for an MBA, consider a part-time program – particularly if your employer will help pay. I got my MBA this way and it gave me the flexibility to stay debt-free and continue on to my PhD afterwards.

6) Do not raid your 401k! In economics, there’s an idea called “diminishing marginal utility of wealth” which says that every dollar you make is worth slightly less to you than the dollar before it. To illustrate, consider how much an extra $10,000 per year would change the life of someone who only made $10,000 per year. It would provide him with much greater opportunities, right? If someone made $100,000 per year, an extra $10,000 per year would be nice, but not life changing. If someone made $1,000,000 per year, an extra $10,000 would barely even show up on his radar. The intuition is that your first $10,000 you make in a given year is worth more than the next $10,000 you make that year, which in turn is worth more than the next $10,000.

What does this have to do with a 401k and student loans? The idea behind saving today for retirement is that you skim off some of the less valuable dollars you make today and save it for the future when you have a lower income (retirement) and get more value out of those dollars. Taking out a student loan works the same way, but in reverse. You are skimming off the top portion of your future income (the less valuable dollars) and using it now when your income is low and those dollars are more valuable. I hope this makes sense.

Bottom line: Borrowing within reason for education is a good idea — IF you expect it will help significantly boost your salary after you are done. Raiding your 401k to fund your education is not. The earlier you start investing for retirement the more time it has to grow. Raiding the account for school is counterproductive and will negatively impact your financial future more than student debt will. (If the debt is kept within reason.)

7) Where you go to school matters. Particularly if you get an MBA. Make sure either the engineering or business degree is accredited (see #4). Be careful of schools that basically function as degree mills. The harder it is to get into, the more valued employers will probably consider the degree. (For example, if you go for an MBA, avoid schools that don’t require the GMAT.)

Research the expected salaries of your potential options. If you’re changing for the sake of enjoyment, I’d encourage you to do so, but avoid debt as much as possible. If you’re changing to make a higher salary and get better opportunities, make sure you weigh the expected long-term payoffs of your various alternatives.

9) Try to keep debt low. A lot of my friends in law school are up to their necks in debt and only a minority of them will come out making six-figure salaries. A lot will probably come out with close to six-figure debt. That is not a good situation to be in.

10) Don’t be too debt averse. I’ve probably made the mistake of being a little to debt averse in my graduate education. I worked part-time during the first year of my PhD program (in addition to my fellowship), competing with many people who had been studying economics all their life whereas I was struggling with math I hadn’t seen in over a decade. I would have greatly benefitted from some extra time for both studying and de-stressing that first year. I’ve had to play catch-up ever since. My wallet is thankful, but it made for a rocky return to the life of a full-time student.

11) Like JLP wrote, don’t get too fixated on the “magic” of a new degree. I am getting a PhD because it’s a barrier to entry into becoming a college professor. While I’ve been enjoying what I’ve been learning, the most important economic concepts that I enjoy the most are what you could learn from reading a basic microeconomics textbook such as Greg Mankiw’s “Principles of Economics”.

12) If you do focus on getting an undergraduate degree, keep in mind that the more quantitative it is, the more valued it is in the marketplace. This translates into how much you should consider borrowing. If it’s a highly quantitative discipline, higher levels of school loans are more advisable.

13) If you’re planning on getting a second bachelor’s (or master’s) degree and have ruled out the MBA, have you considered a degree in economics? Econ grads have very good long-term earning potential (beating out many engineering disciplines in the long-run), it can be a fun subject, and can help teach some valuable skills for financial management on a personal level. It also makes the news a lot more interesting to read. Finance would be another good choice for similar reasons. Other business majors may not be worth it financially to pursue at an undergraduate level. (I doubt an undergraduate business management or marketing degree will put you in much better shape than your master’s degree in English.)

14) Don’t underestimate what you already know or the skills you already have. Getting a master’s in English is no easy task. I would infer from that you have a love of reading and writing. These are both very valuable skills. Leverage them in job searches. With those credentials, you are qualified to teach at a community college (something that would be conducive to earning an income while going back to school), be a writer for a wide variety of situations, and probably have most of the education you’d need for marketing and/or journalistic oriented careers.

15) Don’t ignore the financials involved in your decision-making, but don’t let the bottom line be the bottom-line. Life is about more than just maximizing the number in your bank account. There’s merit and enjoyment in learning. If you can do so in a financially responsible way and it is something you truly enjoy, there’s nothing wrong with pursuing another degree even if it ultimately doesn’t make you better off financially. Just try to minimize the long-term financial effect it will likely have on you.

These are just a few quick thoughts from someone who has gone back to school.

Also, here are a few blog posts I’ve written on related topics:

AVERAGE SALARY BY BACHELOR’S DEGREE: Not All Majors Are Created Equal

THE DANGER’S OF DEBT: Debt is Slavery

CHOOSING A COLLEGE MAJOR: What College Majors Pay Most

THE VALUE OF BEING NUMERATE (GOOD QUANTITATIVE SKILLS): The Value of Being “Numerate”

AVERAGE STARTING SALARIES BY MAJOR: Why Major in Economics

WHY STUDY ENGINEERING: Why Study Engineering

WHY MAJOR IN ECONOMICS: Why Major in Economics

ALL OF MY POSTS ON ENGINEERING: Engineering

ALL OF MY POSTS ON GETTING AN MBA: Getting an MBA