Is college worth the cost?

Antoine Williams
Antoine Williams

Higher education has been getting a lot of press lately, and not all of it is good. Headlines have touted higher costs, cuts to funding, rising student loan debt, the unemployment rate of graduates, and other issues. The information has sparked debate about the merits of higher education, and some pundits have suggested young people should choose alternatives to college such as starting businesses, traveling the world, creating art, or engaging in other endeavors. The only way to determine whether college is worth the cost is to evaluate the benefits, the costs, and the alternatives.
The benefits of higher education
For decades, Americans have thought of college degrees as tickets to higher standards of living, and they weren’t wrong. A myriad of studies have shown college graduates with bachelor’s degrees have far greater earning power than high school graduates. College grads take home at least 60 percent more on average – a difference of about $21,300 a year in 2012 – and the earnings gap gets even wider when advanced degrees are earned.
Higher education has indirect benefits, too. Americans with college degrees are more likely to be engaged citizens, be employed full-time, and have retirement benefits and health insurance available to them. Earlier this year, a Pew Research report emphasized the importance of higher education:
“For those who question the value of college in this era of soaring student debt and high unemployment, the attitudes and experiences of today’s young adults, members of the so-called Millennial generation, provide a compelling answer. On virtually every measure of economic well-being and career attainment, from personal earnings to job satisfaction to the share employed full-time, young college graduates are outperforming their peers with less education.”
CollegeBoard, a non-profit organization that was created to expand access to higher education, emphasizes education also benefits society as a whole with “greater productivity, higher tax revenues, lowered reliance on social support programs, and perhaps most important, a more informed and involved citizenry.”
The cost of higher education
Clearly, college offers some attractive benefits, but at what cost? During the past 20 years, expenses related to higher education have increased significantly. Tuition has risen far faster than the rate of inflation and it’s not the biggest expense at many schools. During the 2013-14 school year, the average cost of tuition, room, board, and fees at four-year public, in-state universities was more than $18,000 a year or about $72,000 for four years. At four-year private, non-profit universities, the average cost was almost $41,000 per year or about $164,000 over four years. That’s a hefty chunk of change, and it has left some parents and students wondering whether the money was well spent.
As tuition has increased, so have the loans owed by students. In 1989, just 14 percent of households with members between the ages of 20 and 40 had education debt. By 2010, 36 percent had education debt, and the median amount of debt had more than doubled from about $3,500 to about $8,500, in inflation–adjusted terms] In 2011, the total amount of student debt in the United States was more than $1 trillion which led to speculation about the hazards of student debt and its potential effect on the U.S. economy.
Clearly, the costs associated with college are significant. Taking on debt to finance college may influence students’ life choices as well as the performance of the American economy.
Is college worth it?
College is not for everyone. The Urban Institute’s 2014 study, Higher Education Earnings Premium: Value, Variation, and Trends, concluded, “A four-year degree is not a guarantee of immediate and well-paid employment. Especially for students graduating into a weak labor market, it frequently takes time to find the path that will make it clear that going to college was worth it.” However, alternative paths can be risky. A 2013 study from Spear’s magazine and WealthInsight, a consultancy group, found 98 percent of the world’s millionaires went to college and just over 1 percent did not attend a university or dropped out. When it comes down to it, only you and your children can decide whether college is the right choice.
Securities offered through LPL, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and Antoine Williams & Associates Financial Services are separate entities from LPL Financial.