Back to School: Is College Still Worth the Cost of Tuition?

As the price of tuition continues to soar, it’s essential to evaluate whether a college education provides a return on investment that justifies the substantial financial burden. And, in fact, perceptions about the value of college have shifted dramatically over the last 10 years. This article delves into the multifaceted question of whether college is worth the cost of tuition.

The answer you’ll see is, “it depends.”

Perception of the Value of College Has Changed in the United States

How people think about a college education has shifted significantly over the last 10 years.

A decade ago, public opinion polls revealed that 96% of parents who identified as Democrats and 99% of Republican parents expected their kids to go to college. And, 75% of young people felt that a college education was very important.

Today, feelings about college are not as positive. Only 41% of young people now think that a college degree is very important, and only about a third of Americans say that they have confidence in higher education.

That is around a 50% drop in positive feelings about higher education.

So, Does a College Degree Actually Boost Income?

There may be political as well as financial reasons for the decline in positive feelings about a college education.

However, statistically speaking, there is actually little debate: a college degree does boost income.

Data consistently show that individuals with a college degree tend to earn significantly more over their lifetimes compared to those without one. The earnings gap between college graduates and high school graduates has been widening, making a strong case for the financial benefits of higher education.

Recent analysis from William R. Emmons, Ana H. Kent, and Lowell R. Ricketts of the Federal Reserve Bank of St. Louis found that a family of college graduates will earn (on average) 175% that of a non college graduate family.

Other research puts that number significantly higher.

Other benefits of a college degree

With higher earnings, there should be a greater opportunity to save and invest which will increase one’s wealth.

Moreover, college graduates generally have lower unemployment rates, enjoy greater job stability, and have access to a wider array of job opportunities. Many high-paying professions, such as medicine, law, engineering, and finance, require a college degree as a minimum qualification.

Plus, a four-year college degree has been proven to improve health, increase the likelihood of being a homeowner, lowers the risk of having problems with debt, and more.

Demand for college educated workers is growing

Despite the risks of obtaining a college education, the need for college educated workers is projected to grow. And, with that need, the wages for those with a college degree should continue to outpace workers who only have a high school diploma.

A 2018 report by the consulting firm Korn Ferry projected a shortage of 6.5 million college gradsby 2030. And, more recently, Douglas Holtz-Eakin, who served as the chief economist of President George W. Bush’s Council of Economic Advisers, predicted a shortage of 8.5 million college graduates.

But, Does the Increased Income and Job Opportunities Justify the High Costs of College?

College graduates earn more than people without a degree and the demand for college educated workers seems to be growing. But, many must incur significant debt in order to get their diploma.

The cost of attending college has been steadily rising for decades, leaving many prospective students and their families questioning whether the investment is truly worth it. As the price of admission continues to soar, it’s essential to evaluate whether a college education provides a return on investment that justifies the substantial financial burden.

Does a college degree increase lifetime wealth? Is there a “wealth benefit?”

Douglas Webber, an Associate Professor of Economics at Temple University evaluated all income, assets, and debts to determine how much net wealth – the “wealth benefit” – a college graduate accumulates over their lifetime vs. that of a high school graduate.

And, this research uncovers a complicated story. The likelihood and degree to which you will see a wealth benefit from a college education can be dependent on a variety of factors, including:

• What you major in. While Starting salaries are higher for STEM graduates just after graduation, liberal arts graduates show higher salary growth over their careers and, in many cases, will out-earn STEM graduates over a lifetime. However, when it comes to wealth, Webber found that:
  • An arts/humanities graduate who attended a private school (and had average costs of attendance) has roughly 50/50 odds that the net present value of their college investment will be positive.
  • STEM and Business majors are very likely to pay off, even with high college costs.
• How much debt you incur:
  • 96% of college graduates will out earn the median high school graduate if they have no college costs, though this drops to 87% for those who pay $50,000 a year.
  • 74% of college graduates will make at least $500k more than the typical high school graduate if they have no college costs, though this drops to 56% for those who pay $50,000 a year.
• Whether or not you actually graduate.
  • Just taking courses does not seem to improve your wealth benefit and can have a negative impact if you incur debt and don’t graduate.

There is less wealth benefit now than for previous generations, especially for Black families

Additional analysis from the the researchers at the Federal Reserve Bank of St. Louis discovered that the net wealth of more recent college graduates is less than previous generations across all races and socio economic backgrounds, but is more pronounced for black graduates.

For example:

Among White bachelor’s degree families, the:

• 1930s college graduate cohort owned 247 percent more wealth than nongraduate families
• 1940s cohort owned 195 percent more
• 1980s cohort owned only 42 percent more

For Black families:

• The wealth premium peaked at 509 percent for the 1930s cohort
• Fell to 177 percent for the 1960s cohort
• Was statistically indistinguishable from zero for both the 1970s and the 1980s cohorts

Paul Tough, an author with several books on education, wrote in the New York Times, “For the nation’s more affluent families (and their children), the rules of the higher education game are clear, and the benefits are almost always worth the cost. For everyone else, the rules seem increasingly opaque, the benefits are increasingly uncertain and the thought of just giving up without playing seems more appealing all the time.”

How debt may prevent college graduates from building wealth

Researchers aren’t sure, but they theorize that the impact of debt may prevent graduates from participating in wealth-generating steps like saving for retirement, buying a home, or starting a business.

So, Is a College Education Worth It?

As the above data show, whether or not a college education (and any debt incurred) will be beneficial is complicated and based on you (or your kids). The benefit of a college degree depends on a wide variety of factors.

Here is a list of some considerations:

• Are you likely to graduate?
• Will you establish a professional network and professional connections?
• Where will you attend college?
• How much will it cost?
• Will you incur debt?
  • How much?
  • What will the direct lifetime costs of that debt be? What is your interest rate? How long will it take to pay off?
  • What are the longer term costs of that debt? Delayed retirement savings and home ownership?
  • What are the opportunity costs of having to use funds to pay off debt as opposed to saving for the future? (The costs will be particularly high if the financial markets are down when you might be able to invest.)
• If you won’t incur debt, what are the opportunity costs of paying tuition? How else could that money be used?
• How much are you likely to earn with your degree? How will the college you attend impact your earnings? (You might try looking into the Postsecondary Value Commission that provides information on net price, completion rates, and post graduation earnings for most colleges in the United States.)
• How will you use your degree?
• How does your race or socio economic background impact the type of college you’ll attend and your networking opportunities coming out of college?

In the end, the decision to attend college with or without debt is highly individual and depends on a person’s unique circumstances, goals, and values. It’s essential to weigh these trade-offs carefully, conduct thorough research, and consider seeking advice from financial advisors or college counselors to make an informed decision that aligns with one’s long-term aspirations and financial well-being.

Try a “What If” Scenario in the Boldin Retirement Planner

You can always try to run and compare “what if” scenarios in the Boldin Retirement Planner to assess the costs of college and college debt. Have the potential student build a baseline financial plan and then run scenarios for different:

• Debt levels
• Tuition costs
• Income levels and start and stop dates for salary
• Retirement savings and investment levels
• Ability to buy a house

And, if you are considering funding the education costs or incurring debt for a student, run similar comparisons on your own plan.

The analysis will not be perfect as it is impossible to predict the future. However, it will be an interesting and highly educational experiment.