After a summer break, I wanted to start the college corner column with a broad topic: Is college worth it?
Parents and students are facing more pressure than ever when it comes to college, which has led many to ask this question. Rising tuition and large student debt loads — an average of $24,803 for fourth quarter 2012, according to New York Federal Reserve http://www.newyorkfed.org/studentloandebt/ — have made many people question whether the cost of a college education is worth the benefit.
Overall, the data show that the benefits from a college education outweigh the costs.
Does that mean that a college degree is necessary for everyone? It wasn’t for Bill Gates, Mark Zuckerberg and Steve Jobs. Of course they are exceptions, but there are many paths to “success.” Getting a college education is just one of them, but it is one of the surest ways to increase salary and employment potential in the future.
Note: Let’s assume for this column that a college education is a degree from a four-year, somewhat selective school and examine more closely the costs and benefits.
There are many beneficial aspects to a college education — knowledge acquired, social connections made, prestige of the degree, the life skills gained from experiencing a new place. But how does one assess the real costs of a college education?
A good place to start is the total cost of attendance which includes tuition, room and board, fees, books, travel, and some personal expenses. Total COA varies considerably depending on the type and location of the college. For example, consider two schools: Cal Poly San Luis Obispo’s COA is $24,119 per year (public in-state, located near Davis); New York University’s COA is $63,537 per year (private school, far away in high-cost area).
Another cost to consider is the opportunity cost or lost wages due to college attendance. Michael Greenstone and Adam Looney of the Brookings Institution’s Hamilton Project calculate an opportunity cost of $49,000 for a four-year degree (http://www.brookings.edu/blogs/jobs/posts/2013/06/07-return-to-some-college-greenstone-looney). Thus, the total COA for four years at our example schools ranges from $145,476 for Cal Poly to $303,148 for NYU.
However, many students do not pay the total COA to attend college. Grants, scholarships and federal and/or state loans offset costs. A good rule of thumb to avoid accumulating too much debt is that a student’s loan-to-debt ratio should be less than half his or her expected starting salary. Compare salary data from different colleges and majors at collegerealitycheck.com or payscale.com.
Do the benefits outweigh this cost?
Benefits realized from a college education include:
1. Good rate of return on investment: The Hamilton Project states that the benefits of a four-year college degree are equivalent to an investment that returns 15.2 percent a year, even after factoring in the earnings that students forego. This is more than twice the average yearly stock market rate of return since 1950.
2. Higher earnings premium: Again, according to the Hamilton Project, college graduates, when compared to non-college graduates, have a higher yearly earnings premium of roughly $30,000 growing to about $500,000 over the course of a lifetime.
Keep in mind though that selection of a major plays a significant role in this calculation. According to a study from the Georgetown Public Policy Institute — http://www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/Unemployment.Final.update1.pdf — engineering continues to be one of the highest paying majors. At the other end of the spectrum are the non-technical majors such as the arts, psychology and social work.
3. Less likely to be unemployed: According to data compiled by Bureau of Labor Statistics, college graduates were unemployed about half as much as those without college diplomas (http://www.bls.gov/emp/ep_chart_001.htm). Additionally, as Catherine Rampell explains in her May 3 New York Times article “College Graduates Fare Well in Jobs Market, Even Through Recession,” the percent of college-educated workers with jobs has risen by 9.1 percent since the beginning of the recession while non-college-educated workers experienced a 9 percent decrease.
4. Positive affect on overall well-being: Research shows that college graduates have higher levels of job satisfaction and make better decisions about health, marriage and parenting. (National Bureau of Economic Research working paper — http://www.nber.org/papers/w15339.pdf)
With all of these costs and benefits to consider, rest assured that if college is your chosen path, there is a right college out there for you. And, if it isn’t, there are many other worthy options.
— — Jennifer Borenstein is an independent college adviser in Davis and owner of The Right College For You. Her column will return to its regular spot on the last Tuesday of October. She lives in Davis with her family. Reach her at [email protected], or visit www.therightcollegeforyou.org.
How they paid
Sadly, many families and students are unable to finance a college education without “overborrowing.” The average percent of total cost of attendance paid breaks down as follows:
1. Grants and scholarships — 30 percent
2. Parent income and savings — 27 percent
3. Student borrowing — 18 percent
4. Student income and savings — 11 percent
5. Parent borrowing — 9 percent
6. Relatives and friends — 5 percent
Source: “How America Pays for College 2013″
Resources for the non-college path
Although in general the benefits of a college education appear to outweigh the costs, there are many individual circumstances that make it worthwhile to evaluate alternatives such as travel, work, community college and vocational school. For those not on the four-year college trajectory, consider:
* “Is College Worth It?” by William J. Bennett
* “Uncollege” movement championed by Dale J. Stephens — http://www.uncollege.org
* 20 under 20 “anti-scholarships” offered by Peter Thiel, co-founder of Pay-Pal — http://www.thielfellowship.org