This is a guest post from Jason Barr, who writes about personal development at Start Being Your Best. Jason is a potential Staff Writer for Get Rich Slowly. His first post described what he learned from failure. Jason is 32 years old, has been married for seven years, and has a 2-1/2 year old son. He’s now a financial analyst, but he spent five years in the army as a Chinese linguist.
What is the value of your college education? It seems as though it is almost impossible to find a job today without one, and even advanced degrees are becoming more and more commonplace. But is it really crucial for “success” (defined here in a financial sense; your definition of “success” may vary) that you even have a college diploma? There’s an argument to be made that it’s not.
The value of a college education
I’m currently saving funds for my son (who’s 2-1/2) to attend college. It’s a daunting task. According to collegeboard.com, the price of a four-year university rises somewhere in the neighborhood of 5.5% to 6.5% a year. It’s actually a higher rate of increase at public institutions than at private. An 18-year-old, beginning their studies in the 2009-2010 school year, can expect a tuition bill of $109,828 for a four-year degree at the average private university in the United States (assuming a 5.9% increase year-over-year). That’s the kind of money we’re talking about here.
But, according to the United States Bureau of Labor Statistics, the median income in 2008 for a worker with a high school education was only $591 a week, while a college graduate’s median salary is $978. Seems like a good trade off, right? Surely it’s money well-spent.
Perhaps not. Let’s assume you were able to provide these types of funds for your son or daughter to begin school in September of this year. Four years from now they’ll emerge, debt-free, into the workforce and will secure a job for a salary of $50,856 (adjusted for an annual rate of inflation of 4% assumed for this exercise). Assuming a constant 4% rate of inflation, and salary adjustments to keep up with that pace until retirement at age 65, your progeny can expect a lifetime earning potential of around $5.9 million. Not too shabby, right?
Against the grain
But what if, instead of paying for your child’s education, you provided this lump sum to them in a one-year certificate of deposit, earning the current highest return available (2.24% as of the writing of this article, according to Bankrate.com)? Now the child’s salary would be greatly reduced; the lifetime earning potential would only be $4.2 million assuming the same circumstances as before.
However, assuming that in both scenarios the child in question was able to save 5% of their annual income (assumed to be a lump-sum deposit at the beginning of the year to keep calculations simple), the child with the high school education will have accumulated $646,532 in the one-year CDs by the time they’ve reached retirement age. The child with the college degree would only accumulate $438.132, a difference of $208,400.
Perhaps it could be argued that the child with the college degree could live with the same expense basis as the one with the high school education, thereby freeing up more money for saving and investing. However, I would encourage a recognition of Parkinson’s Second Law, which tells us that “expenses rise to meet income”.
Rich or poor, thrifty or not, the current savings rate as of the end of May for Americans was only 6.9%. For much of the recent past it’s been lower than that, even to the point of occasionally becoming negative. For as many responsible people who are reading these words, there are many more who would be swept along by circumstances and society, spending exactly what they make (or more), year after year.
Public vs. private
What if one were to assume a lower university bill? Perhaps a private school isn’t in the cards for these two kids (and their parents), but a public four-year institution could be.
The current median cost of four years at a public university for the 2009-2010 school year is only $29,021. At that rate, assuming the same parameters as before (rate of salary increase and inflation, etc.), the college grad does come out ahead, but only by $26,090 at age 65. Certainly, that’s a much smaller margin than I would have assumed, and I would guess it surprises many of you, as well.
In fact, for the lifetime earnings calculation to balance (that is, for both the high school and college grad to show the same dollar figure in savings at retirement age), the high school graduate would only need a “head start” fund of $38,030! Just think, for less than the price of a new SUV, four years of college-educated earning power can be rendered moot. This result, frankly, surprised the heck out of me.
Other scenarios could be run, as well. What if you’re not able to provide any funds at all for your son or daughter? My folks didn’t pay for any of my college expenses; I expect many of you are/were in that same boat. One could look at the opportunity cost of college loan repayment vs. a clean slate for a high school grad with no debt encumbrance.
For a graduate of an average private university, repaying a college loan bill of $114,626 at 6% interest (remember, student loan interest is capitalized while the student is in school) will take 10 years and $152,710. That’s assuming they’re able to make the monthly loan payments of $1,273 right out of college, and don’t have to go with a longer-term repayment plan. After this is done, the college grad will only amass $37,272 more in savings than the high school grad, simply due to the long repayment period they must overcome.
Do what works for you
Be sure you always challenge the conventional wisdom. While often times it’s conventional wisdom for a reason, there are often unforeseen circumstances that cause things to turn out differently than one would expect.
Is a college degree a guarantee of financial prosperity over a high school diploma? As with everything in life, the answer isn’t cut and dried. Depending on the circumstances, it’s entirely possible that college doesn’t make sense for everyone, even from a financial perspective.
If you have the ability to provide a financial gift to your child such as the ones discussed here, you may be wise to consider it, in order to provide options for your children that they may not otherwise have. Certainly there are other things to be gained from a bachelor’s degree than just increased earning potential, just as there may be benefits to some kids to go straight into the work force. It’s really important that a child attend college due to consideration of their goals, not just because “it’s the right thing to do”.
For some people, it may not be.
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I think that part of what may be going on is that going to college has become a largely “passive” activity for many.
In the old days, going to college was special. You didn’t do it unless you were highly motivated to do it. Those who are highly motivated to do things tend to succeed financially over time.,
Today, there are many who go to college just because it’s the thing to do. A good percentage of those probably do not see big financial success over time.
Those who go to college because they are highly motivated to do so probably still receive huge financial benefits for doing so. But there is no guaranty that going to college is going to benefit you all that much financially. The motivation that used to be highly correlated with going to college is the thing that matters.
Rob
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J.D.,
I have to say after reading your guest writers over the past week that it is a close tie between Jason and Karawynn.
Jason,
Great article. I attended private Catholic schools for grades 1 thru 12, a public four-year college, and a private university for my master’s degree. When I left graduate school, I owed about $35,000 and that was 9 years ago. We owe about $365.00 dollars now on that debt. Unlike most debts, educational debt for the most part enables the individual to appreciate in value. This being said, I think those looking to take student loans need to take a reasonable approach to accumulating debt and consider community colleges for their first two years then followed by their final two years at a public or reasonably priced private college or university. I would strongly encourage young people and their families to visit with a NAPFA certified CFP who is fee for service only to determine what they truly can afford and then build a solid plan from there.
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A buddy of mine had a father who made him write up “business plans” any time my buddy wanted something. I believe the first one he wrote was when he asked his dad for a bike at age 9.
That’s a tad extreme… but its probably a good idea to make your progeny do the same before you pay for their college.
You can take that cash you saved for their education, and either put it into a long-term retirement trust… or, you can give it to them that year to pay for college. But… every year, make them polish up their business pan with how much they expect to spend, how much they will earn after college, and expected rate of return.
Both my wife and I paid for college ourselves. We worked in high school, and through college. We knew what we would have to pay back. That “fear” helped us focus on getting degrees that had good return-on-investment…
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This is a nice post Jason. Really got me thinking. Things are of course a bit different where I live (Amsterdam, NL) but the same considerations can still be made.
I liked this post a whole lot better than the one you wrote before. Thanks!
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The thing about all these statistics is that tons of scholarships are given out and there are lots of ways to cut corners. I definately did not pay anywhere near that much for my college education 5 years ago. Students just have to be dedicated to being resourceful.
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I think it is valuable to have this discussion and not make assumptions that everyone is better off going to college.
I have just been through college searches with two kids in the past 4 years. Tuition figures are scary but can be highly misleading, with most students not paying anywhere close to the “sticker price”. A local private school offers a number of discounts to local students which actually brought the tuition in line with the state university system.
Our state (Virginia)has an agreement with the community colleges that if you achieve a reasonable GPA( I don’t remember exactly what it is, but it is within reason) for 2 years that you are gauranteed acceptance at a 4 year school for the final 2 years to complete a degree.
I read an article last year about a college which was trying to keep its tuition lower than its main competitors, and their applications fell off. People perceived the lower price as being of lower value.
Colleges are viewed as status symbols and it is high time we started using the principles espoused on this site to evaluate colleges on value rather than status.
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The 529 plans we have set up for our kids really took a hit last year, so we know we’ll have a struggle to even have TWO years (one for each kid) of schooling saved up for our kids by the time they need the money, much less four years each. At this point we’ll probably go the same route my husband did: go to a college while living at home. Fortunately, we have 5-6 great schools within an hour’s drive from our house. My husband and I each had different college experiences. I was 8 hours away from my parents and lived on campus at a private university. My husband lived at home while taking classes at the nearby public college. Part of me says, “Send them away! More than a day’s drive away! Let them learn to grow up!” but the other part of my winces at the idea of forking out that kind of money.
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@Jaynee – There are lots of things you can do to reduce that college bill, and living at home is definitely one of them. Although, to be honest, I wouldn’t have gotten nearly as much out of college (during the time I was there) had I lived off campus. I personally think that the interpersonal skills, responsibility, and life experiences I gained were much more important than the degree itself.
I understand the concern about funds, though. When I see the numbers I found for this article, I do more than wince.
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I really wonder how this would play our if you seperated it down to colleges within the universities. I graduated a year ago with an electrical engineering degree. My best friend graduated with a philosiphy degree. He was a 4.0 student and now assembles glasses for about $8 an hour. I was a 3.0 student and work as a project engineer making 4 times what he made.
I think for too many, the degree is secondary to the college “experience.” The average high school grad could probably get the same experience by moving to a college town and attending a vo-tech. It will be much cheaper (or here in Oklahoma, free) and after words you would probably be more marketable than many college degrees.
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This blog seems to be very anti-college. The other staff writer wannabe who said he attended his dream school was critisized heavily in the comments. Why is it so bad to achieve a dream of 4 years at a school that makes you happy and is an investment to your future, but there is sympathy for those that bought an extra $100g worth of house when they could have lived in a smaller one? It’s just a different dream.
Also, I think it would be beneficial to compare the SAME jobs with and without a college degree. Some you NEED to graduate a college to become (doctor, lawyer, engineer), and some it’s just very hard to become now without the degree (such as many professional jobs). So, if you want to be in certain fields, especially if you want to avoid manual labor or assistant work, and still get a “good” high paying job then college may be worth it. College also gives many more options. I’ve worked in HR and recruiting, the easiest cut when looking at resumes is to toss any that didn’t graduate with a bachelor’s degree.
Also, the more common college becomes, and now there’s a huge market for people going back to school part time, then these numbers may change in the future. In 18 years who knows what sort of qualifications you will need. Right now a lot of the labor force is people who were 18 during years when college wasn’t an absolute requirment. When those people retire in the next few decades, then the work force will be mostly people who did go to college, or at least were expected to.
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It’s always interesting to me when people say, “Not everyone should go to college.” These people are almost invariably talking about someone else’s kids–not their own. It seems another offshoot of the “Not in my backyard” phenomenon.
One thing few of these analyses seem to include is the amount of students who receive grants, scholarships, and work study money. They also rarely include any kind of discussion of what our economy might be like if we produce substantially fewer college grads. We routinely hear about how the employment sector that has been hit the hardest is the trained labor portion of the economy, and yet people still wonder if college education is worth it. All the while, adult enrollment numbers in colleges across the country are increasing because people want to be qualified for the more secure and expanding employment sectors of the economy.
Finally, I’m not sure why it would surprise anyone that public college expenses are increasing. Americans persistently demand lower taxes, and they routinely target education as a place to cut expenses. This is because I think we as a culture have a very bad idea of how much education costs. When people consider the “cost” of college, they assume that what it “really” costs is the amount of tuition at a public institution. Why then, they wonder, would anyone pay the exorbitant rates of a private institution? Of course, they neglect the fact that theirs and their neighbors’ taxes are paying a portion of the costs of the public college system. If we allow legislators to continue to strip public college education budgets, then I think we will see an even sharper increase in public college tuitions. Because, guess what? To provide a quality four-year education *is* expensive. And I worry about the cost to our society if we keep sending this newly en vogue message that college is like a luxury sports vehicle–nice if you can afford it, but not necessary and not likely to make your life better.
Sometimes a purely individuated economic analysis does not provide a very clear picture. I would assert that the cost of college cannot and should not be analyzed the same way as buying a car. I would offer that it should be analyzed the way that people now realize they should look at their houses–not as candidates for potential “flipping” and a huge windfall, but rather as both an economic and an emotional investment that is not primarily about gain. And people seem to realize this as they say that “College may not be for everyone” while always thinking in the back of their minds “But surely it is for my kid.”
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I agree with the above post that points out WHAT your degree is in is often overlooked. Your passion may be sociology and English literature, but if you aren’t planning on teaching, maybe you should consider a different major. It’s tough to figure out what you want your career to be when you are 18, but I think that it is a failing of high schools that the focus is getting into college and not basic career planning, or skills assessment, to see what careers the students are likely to enjoy. $100k debt may be worth it if you now have a degree that supports a career that makes over $100k a year. Even $20k in debt may not be worth it if you were going into a career that will never make you more than $30k a year…
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By using the average numbers to calculate these statistics you are merely pointing out that a lot of college degrees are worthless and campuses have become overrun with kids who go for the experience, not for their career aspirations.
The average salary for an engineer or lawyer is much higher than $50K, thus the equation becomes much more lopsided in favor of college. A liberal arts degree with a salary closer to $40K, however, points out the problem of paying so much and getting so little in return.
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NOT going to college might be financially detrimental. My employer will pick first from the pool of job applicants with advanced degrees (Masters) and experience. The person with only a college degree or high school diploma is at a disadvantage. Right or wrong, a advanced colllege degree is becoming the standard for job requirements. Perhaps the high school or college graduate can start their own business.
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I think the industry you work in makes a very big difference, as well as the public vs. private route. After attending a private college for undergrad (thanks to generous scholarships) I chose to continue my education with a master’s degree. Living in New Jersey, I had several high priced options, several low cost public options, and Rutgers, which is public but in a higher bracket due to its higher status. As someone with a teaching certificate, I could pay $17,000 for my complete graduate tuition and see an increase in teacher salary between 5-10k a year on NJ teacher’s pay scales. My investment in my education would pay for itself in two to three years. And then I can reap the benefits for years to come, all without any student loans.
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Jason-These are questions most families struggle with. These is no doubt that a college degree will help you (or your child) get a better job and earn more money. There is also no doubt that conventional college will cost over $56k (average in state tuition). It’s pretty hard to see the payback from such a large expense.
The key is to find ways to cut your college costs. There are several ways to do this: going to community college for your first two years, etc…A comment is too short a space to go into depth, but you can go to our website (or email me off line) to learn more.
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I am totally in agreement with this article. I may not be a good example, because I pursued a Master’s in mathematics and have been fairly successful, BUT I did it without debt and because it was an area that I was passionate about and had good job prospects.
I have seen so many of my friends do degrees in psychology, sociology, or various Bible college degrees, etc, only to work in retail positions that don’t use their degrees in the slightest, or else go back to study a trade, incurring even more school costs. Or get an undergraduate degree in chemisty or physics, only to realize that in order to do any interesting/high-paying work, they would need to complete at least a Master’s, if not a Ph.D or even post-doc. If you weren’t planning ahead for that, it can seriously derail you financially and in terms of life stuff like marriage, children, etc.
I hope that when our kids get toward university age, we will be able to have realistic expectations. I have to admit that it will be very tough for my hubby (who also has a Master’s)and I not to have a heavy bias toward advanced university education.
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This is such a touchy subject and the arguments for and against it are never cut and dry. I appreciate the article and think that the points made are pretty interesting and relevant.
On the one hand, I agree that kids that are not highly motivated to go to college straight out of high school should not be prodded to attend just because that’s the default logical step now. Not everyone fits that mold and not everyone wants what college has to offer.
On the other hand, if you take away the formal education, the career possibilities, and the expense, college is good, “safe,” environment for a kid to learn how to become an adult. Some could argue it’s worth the expense just for this.
Like another commenter mentioned though, that may be perfectly attainable without actually enrolling in classes and living on campus.
There are a thousand paths a person can follow walking out the door of their high school with a diploma. As much as I think college was a good experience for me, I think it’s unfortunate that we automatically herd everyone that direction.
This world takes all types and someone pushing a broom is just as valuable (or more so?) to society as someone pushing paper.
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I’m not sold on the college degree thing as a financial tool, though I did just finish my degree a few months ago. I got my current job a couple of years before I graduated because I was highly motivated and had a long resume of experience outside of school. I volunteered a lot, held several important positions on various committees, and even ran public office when I was in undergrad. These are what got me my job, not the degree. I did decide to finish, because it makes a great insurance policy against job loss. If things went the wrong way at work right now, I know I’d have a better shot at getting a job in this sour job market having the degree than not. I think *that* is where the value of the degree comes, right now. The job market is so competitive here, the degree is what would get me in the door for an interview; my experience is what would (hopefully) land me the job.
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I’d hate to think that my kids future could be determined by a math equation! But it’s understood that it’s just a very loose metric to aid in the overall decision.
But I think lost in the numbers, however we choose to count them, are the qualities that make up the personalities of those who choose to go to college or not.
For example, the percentage of kids going to college who come from the top 20% of households in both income and assets, is very high. Conversely the percentage of kids from the bottom 20% is very low.
The question needs to be asked, “what are the earnings potential of the kids coming out of the top 20% with or without college?” Just a guess, but probably pretty stinking good! That group would be likely to prosper what ever their education. Personally I’ve seen too many examples of this to believe otherwise.
Still another factor is motivation. A kid who can excel in a venue in which there’s no immediate income is demonstrating an ability to work for delayed gratification, which we know is a quality closely tied to long term success. But once again, is this a quality brought into college by the student, or introduced and trained by the college?
It may be that the success of the college grad primarily owes to the students background and own ethics. I’d say this is especially true once you get outside the majors that are likely to land the grad in a high paying field, like medicine in engineering.
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Very interesting post – I love this kind of analysis.
A couple of points:
If you assume that a college degree will get you a “higher level” job then a lot of people would still do it even if the money doesn’t work out.
Assuming you have the ability and the knowledge that the education costs offset the increased income – would you rather be working for $978/week in a reasonably challenging job with a future or $591 in a lower-level less challenging job? I’ll take the better job.
Another factor which I think should be considered is that average wages for college/non-college workers shouldn’t be applied to any individual worker. Sure, a degree will usually help a worker to make more money but there are other traits (intelligence, work ethic, interpersonal skills) which will also work for or against a worker regardless of their education.
For example someone who is intelligent, hard working and has good people skills might do very well with a college degree but will probably do very well without one as well (if the profession allows it). In that case the average wages are not good wage estimates to use. That kind of person might have a much smaller gap in wages because of the college degree which of course would support the argument they should skip college even more.
Alternatively someone who doesn’t have a ton of ability won’t do as well as the previous example but if they can get through college – it might be very beneficial for them to get that degree since they might not have a whole lot of other things going for them.
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As someone who is a faculty member at a public university, I fully support making higher education a priority for all who desire it. I truly love the pursuit of academic inquiry. HOWEVER…
A large number of our students are non-traditional (career-changers, adults, parents, work full time jobs, etc), but the bulk of our students are the traditional young adults going straight from high school. As a generalization, the non-traditional students work harder and are more appreciative of the responsibilities (academic and financial) that they take on while in school. They also tend to make decisions on majors based on long term career viability versus general interest. Probably because their life experience has given them some very practical life lessons.
Personally, I did the traditional route at a public university and a liberal arts degree which, while enriching me greatly as an individual, did not get me far in the career marketplace. Several years into my 30s, I went back for post-graduate work to a private institution and pursued a dream job (and accrued a lot of student loan debt).
As schools battle for enrollment, I have seen a general dumbing down of the curriculum and lower expectations set on the critical thinking skills of students. I advise several students who I wish that I could talk to about leaving academics and pursuing a trade. I do believe that there are folks who would feel more fulfilled and do better financially in positions that do not require a college degree in the trades. But I am expected to keep enrollment a priority and keep these kids enrolled in school just barely passing a general liberal arts program. I am becoming convinced that as colleges and universities move towards operating under business models rather than as non-profits the quality of the education deteriorates and the consumers (students) get less for their money.
All to say, making a high quality education should be a priority in our society. The consumer should beware – there are times when you do get what you pay for and there are times when you may be getting swindled.
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I think it’s interesting and useful to look at the “value” of a college education from this angle – whether it will literally pay off in the future. However, it completely overlooks why many people choose to go to college in the first place – not because it will help them make more money, but because higher education is inherently valuable, in ways that cannot be measured in dollars and cents.
Disclaimer: This is admittedly a very privileged position. And I am grateful that I have the ability to take it.
I come from a middle-middle class family and my parents have never been very good with financial planning (which I’m only now realizing as an adult), so I didn’t have any college fund. But I received an excellent merit/need-based scholarship to a very selective, small, liberal arts school. My parents paid what they could, and I’m incredibly grateful and privileged for that, and I took out loans to cover the rest. (I’m about 20k in the hole.)
Is it worth the debt? Absolutely. But not because of the better career or salary I’ll hopefully have because of it. It was worth it because I value learning, I value intellectual stimulation, I value being among peers and professors who can provoke and inspire me.
For me, because of my values, this cannot and should not be measured in dollars. I simply cannot imagine my life without having had my college experience. It’s (almost) like talking about the financial implications of a marriage – judging it’s “value” in terms of long-term financial pay-off. It’s simply not about that. It’s much more important than that.
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Some issues with this article:
1) Jason, in one part you cite the personal savings rate statistic as evidence of a lack of savings by Americans. From that same article, I explained how the personal savings rate actually doesn’t measure savings. Be careful in how you use it.
2) Jason’s methodology of evaluating the worthiness of college majors treats all as identical in terms of earnings. That’s simply not true, nor a fair way to assess whether college is right or wrong for someone. It should be “Go to college to get a degree in X vs. Not”
3) While the value of a college degree has been diluted in the last few decades (McDonald’s managers now need them), not having a degree carries not only a monetary difference but also a social difference, which can affect monetary issues 20 years down the road.
While it is always good to think about your next best use of money/time, this article I think would lead some folks who are at the margin deciding between college and not with the wrong impression.
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@ Anonymous – Thanks for sharing. I just finished reading a book called “Ahead of the Curve”, by a journalist who pursued an MBA from Harvard Business School. In it, he recounted a conversation between a student and a school administrator in which the student was complaining about the treatment he was receiving. “I’m your customer” he said. “How can you treat me this way?”. The administrator replied that the student wasn’t the customer, he was the product.
I found that very illuminating in light of my experiences with my MBA from a well-respected school. Do you find that mentality existing at all universities? I’d be curious to hear your experiences.
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I wouldn’t evaluate the benefits of college just on a potential earnings basis.
There is a lot that can be learned about life and a lot of connections that can be made in college. Not only that, but even if you don’t end up making a lot more money, the odds are good you’ll be doing work that is more fulfilling and/or at least more challenging.
Though, I would agree that the case can be made against college if your kids already know what they want to do and have a path to get there and/or are entrepreneurs.
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The point about paying “sticker price” is always overlooked in these analyses. I went to a private college for undergrad and tuition + R&B was $98,000 over the four years I was there. But my ACTUAL cost was only $34,000 – barely a third of the price tag. Add in the fact that only a quarter of my costs were student loans, and only half of that loan balance accrued interest while I was in school, and I think it comes out way ahead of the person who didn’t go to college.
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Well, I’m a little too far in to back out now, over half-way done with half the debt load… I’m getting that freaking degree!!
That, and my degree should allow me to go and test for the CFP designation. After that… Well, I can go work for somebody or work for myself. I plan to do some of both, moving more towards working for myself as I gain experience and network.
I’m hoping that the $50k investment won’t be a waste, but I’m hoping to earn that much in two years of solid, good work. Since I don’t already have a strong entrepreneurial bend, I’m working on that, too. But college is definitely a tough job… I’m just ready to earn my degree and get out. (I ended up taking a year’s break to get my ducks in row, doing a *tiny* bit of traveling, moving and getting married, so I’m a bit behind everyone else my age.)
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I am in full agreement with Eden Jaeger here. The education I received while earning my Bachelor’s degree last year, while not related to the work I am now performing has aided me in many other aspects of my life and may yet land me a related job.
Going into college I was the most introverted person I have known and was in a state of great depression that had been keeping me shut up in my bedroom nearly 24/7. Through having to give individual and group presentations in front of the class, being required to participate in seminar or discussion groups, and with my found knack for foreign languages, I found myself.
Being competent in several languages is a marketable skill and it’s one I may never have found in the world of paid employment. I have also become much more willing and able to share my own thoughts in conversations and have made friendships and business accquaintances that I would have otherwise been to shy to approach.
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Barry: Would you have had the same opportunities if you weren’t enrolled in college? Would you have been on those committees if you were working full-time trying to make ends meet?
I will never discount my college years, just because of the doors it opened for me. Granted, it takes a motivated person to walk through those doors.
I think it all comes down the individual and the importance put on education while growing up.
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For those who are arguing that one should only go into debt for certain majors, etc., do you know which majors earn the most? There’s an inherent assumption here that “liberal arts” (presumably, humanities) graduates don’t earn money, but that law school graduates do. But, of course, you can’t major in “law” or “medicine” as an undergraduate in US universities. And guess what? Most law school graduates majored in a humanities-related field. Similarly, the trend in medical school admissions is toward humanities majors who have taken the requisite science courses. That’s mainly because they realize that applied knowledge is always changing. Think of the leaps and bounds made in technology recently. If you only took classes to teach you BASIC programming in college, you would be in deep trouble now, since it is a completely irrelevant programming language. Trying to anticipate the trends of the economy and job market is as difficult as anticipating the stock market.
One of the biggest mistakes I see my students and their parents make is trying to game the degree market and pick what they think will be the most profitable degree. This almost invariably leads them to settle on a business major, which is one of the most oversupplied and undervalued fields today. I try to encourage my students to major in what they want. They will be much better positioned for the job market by doing exceptionally well in school, and they will be most likely to do well in school if they take classes they enjoy.
For some reason, people ignore the fact that few employers make hiring decisions based primarily on a recent grad’s major. But think about it: in how many job interviews have you been asked about the *classes* you took in college or the specifics of your major? Instead, most employers look at what school the applicant went to, how well s/he did, and any relevant experience the applicant has (which is almost evaluated via on-the-job training, like internships, and not classroom curriculum). Almost everyone knows that most of what ends up being valuable about an employee is learned on the job. Employers are looking for smart, trainable people, not a major.
I know some will dismiss this as touchie-feelie, especially considering the anti-college vibe (again, anti-college when it comes to everyone *else’s* kids–I doubt anyone here is cashing out their 529 today), but the value of going to college is in learning how to think well and articulate what one thinks. Indeed, that can be learned at a variety of schools and through a variety of majors. I can’t urge you enough to let your kids study what they want. If you’re going to put pressure on them, put pressure on them to take it seriously, work hard, and to get connected. An Art History major who has a 4.0 and worked compelling internship is imminently more employable than a business major with a 2.5 GPA who took summers off.
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I have a strong belief that a college degree is a critical component to financial success since we know that college graduates earn more income than their non-graduate peers. It is a type of filter for future employers that begins when the student completes the eleventh grade. I would argue however, that the reasons that motive people to attain their college diploma are the reasons they are more successful and not because of the diploma.
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I agree that college isn’t for everyone, but think it is a serious mistake to evaluate the value of going to college primarily on the basis of earnings potential. A liberal arts education gives students an opportunity to engage life’s biggest questions, to sort through their own values, and to hone their skills as critical thinkers. Regardless of what career you end up in, there is inherent value in learning to appreciate the arts and fine literature and in understanding the basic framework that informs the natural and social sciences. The dollar is not the measure of all value.
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I think ethel (#31) is really hitting on the keys here. For the person who just wants to show up, party, and barely survive with a degree in hand, the investment is more likely to become a poor one. For the person who takes it seriously, and actually tries to learn and get to know like-minded folks, the investment is likely to pay huge dividends.
I’m assuming that costs and debt are minimized whenever possible though. Starting your career with a $100K debt load isn’t going to set you up for success any time soon.
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I appreciate the math background behind this and how the difference of four years in the beginning can really make a difference.
However, I guess I’d definitely stress to folks the importance of how this may not work for you — many people can’t even get the job they want without going to school (in particular my wife and I, she’s in med school and I’m in grad school for engineering — we’re going to ‘start’ life with hundreds of thousands of dollars in debt!)
But still, the conclusion is surprising that college grads may not come out as far ahead! However, both results hinge on people being wise stewards of their money and SAVING. Something that I didn’t think I wouldn’t know right after high school, let alone right after college.
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Money isn’t everything- you have to consider your ultimate satisfaction with your career- maybe you can make a great living without a college degree, and maybe you’ll be very happy without that degree. But maybe not- maybe you want to spend your life in a field that requires a degree, even if your pay is the same. Also, it seems that good paying jobs without a college degree requirement are increasingly more difficult to find. There is something to be said for job stability. I agree that college isn’t for everyone, but the economics of the situation aren’t the only factor.
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Hi there J.D. –
Seems to me that Jason is a really strong contender for that new post at Get Rich Slowly with this entry. His writing demonstrates a depth of inquiry, willingness to question conventional wisdom, and ability to “crunch the numbers” that will make him a valuable commentator on personal finance issues. Thanks for this piece! Monique Tilford, Co-author, Your Money or Your Life
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I have 110k in debt from a great school. I am still struggling though. It will be worth it depending on what field I go into.
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I believe Jason’s comment at #14 nicely sums up the basis of his entire article. I do not believe he is being anti-post secondary education, he is simply getting people to look at both sides of the scenario; to broaden their horizons. Let’s face it: forcing kids to go to university for reasons other than their own desires and rack up thousands of dollars of debt, meanwhile a certain portion drop out, another portion don’t even get into their field, and a large amount are left with horrendous student loan debt requiring them to live like college students for years afterwards is not a pleasant thought, and is certainly NOT a positive way to start out young adulthood for those individuals.
Post-secondary education does infact open up more doors in regards to employment, but if it doesn’t fulfill the individual and they detest what they do, it simply isn’t worthwhile. It is all about following your desires, your dreams, and your aspirations. Being a senior psychology/ sociology double major I have seen many a student leave the field to pursue other endeavours. While I wince at the student debt some may have accumulated, I realize what suits some does not suit everybody. It all depends on YOU and what YOU want. Nice article.
PS. I have to second commentary #10: I find it odd that the last potential GRS writer that mentioned college was so heavily critised, yet this one is not? I personally think both are good
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My daughter went to college right out of high school just because that’s what everyone did, and I paid for most of her expenses. After a semester of straight Fs, that was it for both of us. Fast forward through 7 years of low-paying jobs and a stint in the military (no school benefit), she’s back in school on her dime and with a goal and plan of what she wants to do. My plan is to help her after she gets out by paying off some of her loans (she doesn’t know this).
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I’ll encourage my son (and future children) to either 1) try community college for a year or 2 as a cheaper route or 2) take off a year or 2 (or more) to work and see if college is really for them, rather than making it the default choice out of high school.
Also, I feel that 6% tuition growth is unsustainable. At some point, college will just become too costly for what you get. We’ll see a return to the trades and other fields that don’t require a college degree. The previous staff writer audition mentioned having $100k in student loan debt – and might take 20 years to pay it off. That’s no way to live – even if he did go to his “dream school”.
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I agree that strictly financially speaking, college doesn’t make sense for everyone; but,
It should always be pointed out when having this discussion that college isn’t only about the degree you get and the salary that degree generates. It’s also about the immeasurable life lessons you learn. Socializing with others, learning to live with others, experiencing diversity (especially important for those from rural areas), networking, budgeting, etc.
These are skills that benefit anyone, no matter what they decide to do upon graduating.
Personally, my degrees have benefited me greatly from a financial standpoint. But it’s the life lessons I learned at college that I could never put a price tag on. I think everyone deserves to have those experiences. Having a degree never hurt anybody. Not having one has hurt many.
Another problem is it’s next to impossible to determine whether or not college makes sense financially for a child after high school graduation. In my opinion, better to error on the side of caution, a college degree being the side of caution.
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My college degree was the biggest waste of time and money! And no, I did not just coast through college, I applied myself, worked hard, and went to a highly respectable public school that was supposed to be a leader in my major.
Then I graduated, and found out that my degree was absolutely 100% worthless.
Boo college.
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Wow, way to post a controversial topic as your first. I am very pro-college, so it rubs me the wrong way a bit. With that being said, I have respect for you hitting it hard and heavy – and posting it in a (at least decently…) analytical way. Don’t get me wrong, I like “How to find coupons in your area” posts, but this one makes you really think.
Good…
I like the way you looked at it from an investment point of view. Run the numbers and see if the choice is warranted or not. Even on things like college, this step is a must. I personally would recommend college to everyone who could afford it, simply for the great experience, greater knowledge, and better earning potential and job security. If you cannot afford it however, and do not plan on going into a field that is secure and gives a good wage – then it’s probably not the best decision.
Bad…
I dislike your citation of “Parkinson’s Second Law”. It’s true, but not nearly enough to discount the 1.7 million dollars difference between the two earning potentials. Sure, a good amount of that will go to perishables, clothing, nicer cars, etc. But a good portion of that will increase your standard of living and your net worth. Furthermore, I believe that if you took the savings percentage of those with a college degree versus those who do not, I believe the percentage would be much higher with those who have a degree. Thus, your base numbers would be skewed. I say this because of the following idea. If you were earning just enough to have the things you need, your savings percentage would be nil, and you would bring down the national average.
More of my 2 cents…
The biggest thing when going to college, is to research your potential field. What is the average wage out of college, 5, 10, 15 years from now? How about job security? Is it projected to grow? Decline? If you are taking on 100k in debt without a substantial increase in job security and wage – it may not be the best move.
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This article may have an interesting point to make, but it’s drastically and I can only assume deliberately misleading. Not only is the savings rate likely to be much higher for college educated people than for high school graduates, but it’s pretty stupid to act as if the only benefit of going to college is a potential increase in the size of your retirement fund. Maybe your kid likes the idea of having higher expenses, which usually translates into a higher standard of living?
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I liked the way Jason approached this article, but I think he missed a couple of points: most importantly, what if you want to make MORE than an average income? A BA may open many doors to earning big money, especially in industries like finance. With a high school degree, unless you’re an enterprising entrepreneur, it’s going to be difficult to get beyond the average.
Also, white-collar jobs are considered by many to be easier and more pleasant than blue-collar. The amount of money you earn isn’t all that matters– how difficult or painful it is for you to earn it is also important!
I’m not saying I think that everyone should go for a college degree! I just wanted to point out some points that I think are very relevant.
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I heartily disagree with your conclusion about how a lump-sum transfer of money can somehow “equalize” the financial outcomes of high school vs college grads. Most of my comments have already been discussed above but I’ll add my take:
1) Jason, you discussed average wages and didn’t take into account the distribution of wages. What I mean is this: what if the college graduate had a greater chance of earning big bucks? Even if the average wages were the same for HS vs college grads, I’d want my child to have a “lottery ticket” for future earnings.
2) I also want to add that social pressure, which can be good or bad, determines a lot of financial outcomes. A key example is marriage, which we all know is a big wildcard in anyone’s financial future. Does anyone here read “Dear Abby”? How many times does a parent or sibling write in about a loved one who is “mismatched” by marrying or dating someone who lacks a college degree? I’m not saying that this judgment is good or bad. Yet, as colleges also educate their students to think analytically, delay rewards, and rise in the marriage market. Something similar can be said for friends and colleagues.
-Jean
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I don’t think this is a very compelling article. The point of going to college isn’t to “raise your average earning potential.” Would anyone actually take this risk with their own child?
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I think it’s an important developmental milestone because the student is learning to act a little bit more like an adult. For all the stories of frat parties and binge drinking, going to college is often a time of huge development for many people in the areas of personal interaction, responsibility, and (if you take the right courses) learning how to think analytically.
Is college the only place this can occur? ‘Course not. You’ll get all this stuff in spades if you skip college and learn a trade, or go into business for yourself. College is just a bit of a halfway-house for this, so to speak. It makes the transition a little easier.
Is it worth the enormous investment of time and resources? That’s up to you (and your kids).
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