Trying to Get a Handle on the Value of College

From what we've discussed previously, there seems to be two main issues related to college being worth the cost as follows:

• Should everyone go to college in the first place? In other words, is it worth it for everyone no matter what the circumstances?


• For a person who is trying to decide whether or not to go to college, what makes it "worth it" versus "not worth it"?

As you'll see, the answers aren't clear. But I'd like to take a stab at these and then have you all chime in with your thoughts. Here goes...

Is College Worth It for Everyone?

Clearly, the answer to this is "no." Some people simply aren't "college material" or prefer some sort of other career path. The tougher question is what percentage of people should consider and attend college and what percentage shouldn't. This is much more difficult to ascertain, but there's certainly a current line of thinking that says way more people are going to college (not necessarily graduating from college) than need to go.

What Makes It Worth It?

Like most personal finance answers, the response is "it depends." If you increase your income enough and don't incur much (or any) debt, it probably is. If you don't increase your income and/or have a lot of debt left over after graduation, it probably isn't.

I know, it's a pretty vague answer. But a recent study can make it a bit less murky. Some highlights:

The choice of undergraduate major in college is strongly tied to a student's future earnings, with the highest-paying majors providing salaries of about 300 percent more than the lowest-paying, according to a study released Tuesday.

College graduates overall make 84 percent more over a lifetime than those with only high school diplomas, the study said. But further analysis of 171 majors shows that various undergraduate majors can lead to significantly different median wages.

Petroleum engineering majors make about $120,000 a year, compared with $29,000 annually for counseling psychology majors, researchers found. Math and computer science majors earn $98,000 in salary while early childhood education majors get paid about $36,000.

"It's important that you go to college and get a (bachelor's degree), but it's almost three to four times more important what you take," said Anthony Carnevale, director of Georgetown's Center on Education and the Workforce. "The majors that are most popular are not the ones that make the most money."

The data is important considering the high cost of a college degree and the significant loan burdens taken on by some students to obtain one, Carnevale said.

"We don't have a system in the United States where we align what you take with career prospects," Carnevale said. "Nobody ever tells you when you go to college what happened to the other people who took it before you."

Here's the bottom-line IMO: As long as a student matches his expected income post-graduation with the cost of college (including debt), then college will likely be a good investment. If he doesn't and the income/cost relationship gets out of whack, that's where it gets to be a financial no-go.

For example, if a student could earn $20,000 out of high school, earn $50,000 out of college, and will have $10,000 in post-college debt, it's probably a good deal for him to go to college.

But if a student could earn $20,000 out of high school, earn $30,000 out of college, and will have $75,000 in post-college debt, it's probably not a good deal for him to go to college.

This is why a doctor leaving school with $200,000 in debt may still be making a good financial decision while a social worker leaving college with $20,000 in debt might not be.

Almost Always Worth It

Let me throw in one scenario that almost always makes college worth it for the student: if someone else pays for (all or most of) it.

This happens most frequently when parents pay for their child to go to college. In this case, the child is giving up four years of earning an income to attend college, but in almost all cases, this will be worth it financially for him/her. Parents probably also find it worth the cost. Not financially worth it, but worth it in the sense of preparing their child for a "better life".

Just to be clear, I understand that there may be value in having a student pay for much of college himself. That's a valid issue, but it's taken out of the equation when the parents decide to foot the bill.

Looking at Money Only

The above thoughts are based on a financial perspective only. I realize there are many more factors to consider when it comes to attending college: issues like helping a person grow into adulthood, gaining knowledge for the sake of knowledge, and developing a career that the student is passionate about (versus just taking a different job simply because it pays more/costs less.) These are valid issues and need to be considered along with the financial implications as a student decides whether or not college is truly "worth it."

So, what's your take on the issue? What did I miss? What did I get right? What did I get wrong?

Comments

[jack foley]

college fees are mad, the amount of people who have degrees in the world today without a job is staggering..

[Matt]

Still struggling with this issue eh. Well down load the FAFSA document that is required for financial aide PDF version and fill it out and you will see how the questions are written. If you come from a middle class background where both parents are still together, no deaths or divorce, you never have been in foster care, homeless, on welfare, food stamps,learning disabilities,handicaps and a whole other mess of questions in the 15 page document you are bound to get zero help when it comes to college. In otherwords allot of the people getting aid, grants and scholarships come from such a disadvantaged background that they are the ones who could have the hardest time in college. They are the ones who are getting the truck load of money available. They also could be the ones who will get strapped with the most college debt because lets face it if it weren't for that aid they would not be going to college.

I still say college is worth it. Even if you go to a CC to learn how to weld. There are many skills not taught in high school that people will need to get a job. unless you hit the intelligence lottery like Bill Gates. Robert Dell, Steven Zuckerberg you will only get so far with no education. Heck even a friend of mine who works to Detroit Edison starting out as a line man is seeing that since his college education is completed that his employer is promoting and raising his salary over and above his comparable colleague.

I could not be doing what I am doing without a degree. No one would hire me unless I was working toward a degree. My firm would not even hire someone with a 2 year degree. My wife could not be teaching without her degree. There are minimal standards set by the state to teach. There are allot of jobs the will require a degree just to even get your foot in the door.

Where I don't think it is worth it is in degrees that have such a narrow focus. A masters degree in women's studies? I am not sure what that involves but is sure sounds like the only thing you will be qualified is to teach that subject and if I look in the paper.

[mdb]

Considering only about 21 percent of community college students complete their programs within 150 percent of expected time, 55 percent of students at four-year public colleges finish their degrees in 6 years, 64 percent of students at four-year private nonprofit colleges finish their degrees in 6 years, and many get useless degrees like English, Psychology, Women Studies (anything with studies in the name is useless), etc.; I would have to disagree with the statement that college is almost always worth it.

[Bill]

You miss one important point in your commentary, most people do. The choice to attend college is not between "a student could earn $20,000 out of high school, or earn $50,000 out of college, and will have $10,000 in post-college debt". You are neglecting what the working person would do during four years of work. The choice is actually "A student could earn $20,000 for four years ($80,000) and have 4 years of work experience (enabling them to earn a lot more than 20k per year in year 5) or they could earn $50,000 in year 5 and have $10k in debt." The total difference in net worth is $90,000 at the end of year 4 and a degree vs 4 years experience. Depending on the field work experience, starting out 4 years ahead on the pay scale, could be even more valuable than a degree. This doesn't change your conclusion at all that "it depends". Personally I would suggest that if your desired career field absolutely requires a degree, as some commenters have noted, college likely makes sense. If it does not you are probably better off spending four years in a less desirable entry level position, making actual money, and positioning yourself for faster advancement in the future.

[Linda]

It has almost become a requirement to go to college to get any kind of job that involves sitting at a desk. Administrative assistants, secretaries, entry level administrative positions, bank tellers - almost all require a bachelor's degree these days - or at least, people with a degree are given preference. The day of someone with a HS degree and typing skills getting a decent job are gone.

[Bill]

I disagree Linda. I think you are absolutely right for the time being, however I think that will change again in the long term. It's absurd to require an assistant or a bank teller to get four years of schooling when a single year of actual experience will teach them all they need to know. Markets can get out of whack and operate inefficiently, and they can do it for a long time, but they will eventually correct. Maybe it's another twenty five years before employers realize that the person smart enough to not spend four years of their working life and four years of tuition on unnecessary education is actually a better hire over the college grad.

[Jim]

Jack : "the amount of people who have degrees in the world today without a job is staggering.."

THe unemployment rate is lower for people with degrees than those without. IN 2010 people with bachelors had 5.4% unemployment and people with just HS had 10.3%.
ref: http://www.bls.gov/emp/ep_chart_001.htm

Bill: The study in question figures total lifetime earnings and they do consider the fact that college costs you 4 years. But you are right, it does take a while for the people who go to college to catch up in earnings. I am an engineer with a good salary and I figure it took me until about age 35 to catch up to what I could have made if I'd started work as an electrician out of high school. But now that I have caught up I'm making 70% more than an electrician would and expect to until I retire.

[Jim]

Matt : People in middle class income levels can certainly get financial aid help with college. Things like being divorced, getting food stamps or being homeless has little to do with the aid given.

Even people making over $100k can get aid grants. But its certainly not like everyone making above median income gets nothing at all.

22% of families making $60-$100k got state grants averaging $2700. 11% of families making $40-$50k got Pell grants.

Plus theres tax breaks. Any family making under $160k can currently get a $2500 tax credit per student. 100% of the first $2000 and 25% of the next $2000 is credited.

[Alotta Lettuce]

Excellent analysis, although I think you did miss a pretty big piece of the puzzle: Employability.

The unemployment rate for people with a college education has remained in the neighborhood of about 4.5% all the way through the recession, and is even lower for people with Masters degrees and PhDs. In the most general sense, people who earn a degree - ANY degree, even the ones on the lower end of the earnings spectrum - will always have an economic advantage over those who don't get a degree at all, because they will always have better prospects in terms of getting and keeping a job.

Likewise, your analysis ignores the fact that holding a degree is a requirement for so very many jobs, even those that won't necessarily make use of the degree. Without obtaining one, individuals willingly preclude themselves from even being considered for a great many opportunities. It might not be fair, but it's reality.

[Crystal]

I'd only add that the personality of the person attending college would need to be taken into account as well. A general slacker is a waste of money in my opinion in college. If the person knows the value of the education, it's much more "worth it" to get educated - I saw great examples all over the place when I was in school.

[Apex]

"The majors that are most popular are not the ones that make the most money."

And that is the key. People want to go to college but they want to take a degree that they either think will be fun or will allow them to "do good" or perhaps that is just easy or who knows what the various reasons are.

I don't think most college students or parents are aware of the extreme importance of making a very wise choice when it comes to degree. This and marriage are probably a couple of the most important decisions you will have to make. You have to make this decision very young and often without proper input from parents and adults.

If someone wants to choose a major for the reasons I list above that is fine. But they should be given a very stark and blunt assessment of what their future is likely to look like before they make it. I don't think most college students have a clue that the piece of paper they get when they are done, their "ticket", well like all tickets, it has a destination on it. They chose that destination. Most of them are likely to be very unhappy with the destination once they get there because they were expecting Daytona Beach and they end up in Anchorage (nothing against Anchorage).

[Matt]

Jim: Can you please tell me how I can get some of this aid? I filled out FAFSA and have my EFC ( Expected family contribution) which exceeds what his college cost will be. This tells me that there is no financial need as determined by FAFSA. Aid based on need is not there.

My son graduated with a 3.78 GPA,involved in the NHS,an eagle scouts,and has honors chords for over 300 hours of community service and numerous recongintions for volunteering especially with the handicapped. HE has gotten some scholarship money but nothing equal to some awards. If he had a higher grade point and did better on his ACT we could be looking as some serious scholarship money. But we aren't.

He can borrow $5500 at 8% interest and still not have enough money for the who year.

So based on this my son may be able to borrow maybe $25k for 4 years max. So where are these people who are borrowing $50k to $80k getting their money?

[BD]

Deciding not to go to college can frustrating though, when you consider that many jobs *require* a college degree, even though they won't pay a salary that justifies it. Take Graphic Design for example. Most graphic design jobs require a 4-year degree. When I worked at TCR in SoCal, they decided to hire another graphic designer. The art director threw out any resume that didn't have a 4 year degree. Yet, the wages for a designer were around $30,000 a year. In SOUTHERN CALIFORNIA. That's pretty much poverty level for that area, and certainly not enough to pay back extensive college loans plus live in that area half-way comfortably.

Linda already addressed this in her comment near the top. Most desk jobs, regardless of pay, require a college degree. Unless you're super-connected or have some sort of highly desired computer skill, (or you plan on staying in retail for the rest of your life), you'll need to go to college of some sort (even if it's just a trade school. Ok, that isn't college, but it is an extended education).

Bill, I hope you're right about the market correcting itself. I personally only see it as getting even worse in the future, because a college degree will just become the status quo, much like a high school degree already is.

[Jim]

Matt: "This tells me that there is no financial need as determined by FAFSA. Aid based on need is not there."

Apparently you don't *need* aid.
I'm guessing your family has an above average income & asset level and/or your son is going to a relatively affordable college. Right?

There are however many middle income people who aren't homeless or on welfare who do qualify for need based aid.

The federal aid is Pell grants and most of that does go to low income people. States and colleges also give out lots of aid and that is often received by middle income families. Of course every state and college is different. For example if you were Georga residents going to a Georgia public school you'd get free tuition.

Every situation is different.

You probably still may qualify for a tax credit or at least tax deduction if you're paying tuition for your son. (you can't double dip with a 529 though)

The loans you're talking about with $5500 max are likely Stafford loans which are the government student loans. I believe it should be 6.8% rather than 8% though. If people borrow more than that then I believe its generally private student loans, offered independently by lenders.

Can you not afford the EFC amount?

[KMI]

As noted above, many basic and entry level jobs require a college degree as a minimum. Bank teller and admin/secretary are examples that come to mind. In general, a college degree has taken the place of a HS degree as a de facto standard, and resumes without such a degree are thrown out.

Some of the discussion seems to revolve around the trade-off between working for the 4 years, or getting a degree. To evaluate this, can sombody tell me what jobs (that can lead to careers) are available to an 18 year-old straight out of high school?

[08graduate]

@KMI: When I was 18, a local exec paid me from his own pocket to fix some problems with VPN connections that had stumped the office IT guy. After I succeeded, he offered me that IT guy's $45k/year job.

I politely declined, and went off to college for my engineering degree. That has proven to be a great financial and life decision. Had I accepted, though, I would have had the viable beginnings of an IT career, and been in a better spot financially than many college degrees would have left me.

[ros]

Getting in late here, but I had no idea you would need a degree to get a bank teller job? WOW!

[KMI]

@08graduate - thanks for the feedback. IT specialists do seem to be able to do better than the average with minimal degrees. As you pointed out, even if you are sharp enough to make it in IT without a degree, getting a degree opens up a lot more options.

@ros - unfortunately, this has been true for a while. My husband (who worked in the industry for a number of years) commented on that change almost 10 years ago. It may not be universal, but in general the feeling was that you needed somebody who was at least 21 or 22, with good personal skills and preferably good sales skills as well.

The real issue may be that a person at 18 is rarely seen as mature enough for a position of any responsibility. At 22 you might finally be viewed as mature enough - but you need to demonstrate that you spent the last 4 years productively to be considered. College is seen as productive; working most jobs available to 18-year-olds on a full-time basis for 4 years is not seen as productive.

[Nancy]

I'm a high school teacher (30+ years). The biggest problem young people have is they don't know who they are, their skills, and aspirations. The student that knows those things is much better off than the student that goes to Community College to "get their gen-eds." Mix that with alcohol and you have the students that don't finish.

Matt,
It's so sad to see that so many young people with great skills not getting the scholarships they aspired to. Unfortunately, the last decade's graduating classes represent one of the largest groups of young people to attempt college in recent history. Couple that with the Great Recession and more people asking for aid and you've got a tough situation.

I read about this 5 years ago in the newspaper and got my kids into lifeguarding/WSI to get to work 60 hrs a week during the summer and health certifications to get part time jobs during the college school year. They live off campus in less than desirable neighborhoods, loaded up on credits, and don't have cars. As a family, we didn't take big vacations and are holding off any major purchases. We rarely eat out. Yes, life isn't exciting, but having 3 children not living in your basement as 25 year olds is a good goal to have. Just as doctors must delay gratification, we as a family are also doing the same thing, delaying most of everything to afford college degrees for our kids.

The oldest just graduated with a BA and BS from two different universities in 5 years. She just got a full time job in a medical field. She has $20,000 of debt, but makes well over that amount a year. The other two are on the same path.

Your child is smart and you are too! Get out a pencil and figure it out!

[David]

Once upon a time it wasn't so important what major you chose. Definitely that was the advice we were getting in Britain in the early 1980s (this would have to be a much earlier period in the US). Not so many people had degrees and just getting a degree meant something. I think that advice no longer applies but advice on this in many cases hasn't caught up. OTOH the most popular major in the US is business which does sound useful at least, though a lot of undergrad business degrees probably aren't really very useful.

[Brittaney]

Youshow some interesting viewpoints. One thing it seems you didn't take into account was the fact that some people purely want to make the world a better place no matter what the pay rate. Lets take teachers fro examples, California Public school teachers are definetly on the low end of the payscale and almost every single college student who wants to become a teacher knows this. But they do it anyways. They know they won't make a million dollars doing what they do and from the way you purposed it the amount of student loans vs. time lost vs. future pay rate makes it a terrible path but they still do it because they get more value out of teaching a child than out of making a million dollars.

Is college for every student? No. If a student had trouble maintaining grades in high school going to a 4 year university isn't going to help them much but these people can still lead productive lifestyles. Does going to college mean I am going to have a gaurenteed better future than some one who did not, No; but I have a better chance.

As far as financial aid goes, I am the average American according to the FAFSA. My EFC was higher than my schools cost but that doesn't mean I have any money to pay for school. I am the oldest of 3 kids and I did not have a savings or college fund from my parents. I have gone to school via student loans and once I graduate I will have a BA and a minor and about 35k in student loans. I knew this from the day I started college so I got a job and have had one since I started college 3 years ago. I have compared my experiance over the last 3 years to some of my friends who have had their tuition, apartments, and just about everything paid for bytheir parents and in the end I thinkI came out with the better deal.

I have a strong grasp on my finances. I know how to save myy money and take as many classes as I can each semester becasue it costs the same as taking the minimum. My friends get average grades and go out partying every weekend. Yes, they will graduate without any debt but they will also be far less responsible than myself. I can easily see that once they graduate they will put themselves into debt because they do not know how to budget, save or make any of the choices I have had to make over the last few years.

@Matt from a college students perspective: 1 look into private scholarships; check your local library for a really thick book on national and local scholarships. It takes some work butwith your son's resume he should be able to apply for many. Also look into the school that your son is considering many schools offer scholarships to freshman that are not mentioned on the FAFSA. If your stafford loan does not cover the full amount of tution look into the Parent PLUS loan or private loans. From what I understand the PLUS loan is a federal private loan to parents that can be used in addition to the stafford loans. IMO I would use private loans as an absolute last resort because I believe they have the highest interest rate. Hope this helps!