Borrowed money is generally categorized as "good debt" and "bad debt." Bad debt means taking on debt for things that depreciate in value—like a sound system. Good debt is debt used for an investment. Real estate, for example. Or a college education. But, because of the student loan crisis, some are now starting to question whether college is still considered "good debt."
At Two Cents, we cover a lot of posts that include some pretty standard personal finance advice. However basic this advice may be, not everyone agrees with it. And that's okay, because sometimes, traditional advice is worth questioning. In our "Money Advice the Experts Don't Agree On" series, we dig a little deeper into these seemingly basic topics and look at different perspectives on the matter.
The Case Against College: It's Been Oversold
Some believe college has long been oversold, and they argue that the recent student debt drama has only made that more apparent.
Forbes contributor George Leef takes on a recent Pew study entitled, "The Rising Cost of Not Going to College," and it discusses just that—the salary differences between those with degrees and those without. They took data from Millennial-aged, full-time workers and found that, on average, those with bachelor's degrees earned $45,500/year. By comparison, full-time high school graduates only earned $28,000.
But Leef believes the data is misleading:
Going to college guarantees you a lot of expense, both in money spent and time that could have been used differently, but it does not guarantee you a job that pays well enough to cover your costs. In truth, it doesn't guarantee you any sort of job...Reading through the report, you find no evidence of the fact that large numbers of college graduates can only find employment in jobs paying the minimum wage. Currently, according to Bureau of Labor Statistics data, 260,000 people with college or even professional degrees are so employed. Moreover, the percentage of college graduates who work in jobs that don't require any advanced academic preparation (the "mal-employed") has been rising for years, and now stands at 36 percent.
He argues that, if degrees are truly valuable, it doesn't add up that so many graduates are unemployed or underemployed.
The Burden of Student Loan Debt
There's no denying that student loan debt has become a massive burden for lots of people. Nationally, we've hit the one trillion dollar mark for student loan debt. The average student loan debt amount for class of 2014 grads is $33,000.
There are a couple of reasons why college has become so expensive. According to the student loan documentary Ivory Tower, higher education funding has decreased over the past couple of decades. And schools have become more business-minded. In an interview with PBS, director Andrew Rossi said:
...what we're really looking at is a business model in higher education that encourages a growth to become bigger and better, which allows universities to attract student loan dollars and is creating perverse incentives in the classroom, in addition to this terrible student debt crisis. I think that the propagation of even more ranking, the sense that schools can be judged based on their facilities. In addition to the older sort of branding that the Ivy League might have provided or the flagship state school, there are now so many different ways that schools can compete to attract a 17- or 18-year-old.
In the film, Rossi illustrates how these schools attract both parents and students. Most of it has less to do with education and more to do with the prestige of the college and how fancy their facilities are. Basically, colleges are competing with each other more than ever, and, as the documentary points out, it's become "an arms race in higher education."
Another argument Leef and others make against college is that overselling it has created something called "credential inflation." This is basically the idea that every employer now only wants workers who have college degrees.
Evidence that this trend is still going strong is found in this report, which notes that "27 percent of employers say their educational requirements for employment have increased over the last five years and 30 percent are hiring more college-educated workers for positions that were previously held by high school graduates."
Leef says that, instead of simply promoting the return you'll get with a degree, research should also focus on the difference between those who are likely to gain something substantial from a college education and those who are just going to spend a lot of money for a degree.
The Case for College: It Still Offers a Return on Investment
With this in mind, is college still worthwhile? Thomas Frank, creator of the website College Info Geek says, most definitely. He tell us:
For me, the answer is a definite yes. College is a giant, concentrated maelstrom of opportunities, things to learn, people to meet, new perspectives, and more. It's awesome - particularly if you find a way to make it affordable.
Even with the huge student loan debt amounts, most experts, including Rossi, say college is still a valuable investment for most of us.
Unemployment Rates are Lower for Grads
Plenty of data shows that a degree still pays. Leef argues that graduates are unemployed and underemployed, but it's even worse for non-graduates. In that same Pew study he mentions, the unemployment rate among Millennials with bachelor's degrees is 3.8 percent. For those without college degrees, the unemployment rate is 12.2 percent.
Despite the recent struggles of college graduates, investing in a college degree may be more important than ever before because those who fail to do so are falling further and further behind.
So it comes down to choosing the lesser of the two evils: pay a boatload for college and take on student loan debt, or earn much less over a lifetime and face a greater chance of being unemployed.
Grads Earn More
The Pew study isn't the only data that shows college graduates earn more. Abel and Deitz released a paper this year: Do the Benefits of College Still Outweigh the Costs? In it, they conclude:
...the benefits of both a bachelor's degree and an associate's degree still tend to outweigh the costs, with both degrees earning a return of about 15 percent over the past decade. The return has remained high in spite of rising tuition and falling earnings because the wages of those without a college degree have also been falling, keeping the college wage premium near an all-time high while reducing the opportunity cost of going to school.
Basically, they found that, yes, the investment of college is still worthwhile, in terms of earned wages. Based on data from the U.S. Census Bureau and the Bureau of Labor Statistics, their paper reported that someone with a bachelor's degree can expect to earn about $1.2 million more than someone with a high school diploma through their working years. An associate's degree will earn $325,000 more than someone with a high school education.
This isn't to say the data applies to everyone. Plenty of people do just fine without a college degree. But, according to the stats, on average, college degrees are still a worthwhile investment.
Make the Most of Your Investment
Of course, your mileage may vary. NPR points out a few instances in which pursuing an education wouldn't be worthwhile, financially. It helps to know these cases to get the best return on your investment:
- If you don't actually graduate and get the degree
- If you pick the wrong college
- If you pick the wrong degree
Here are some ways to avoid these circumstances and make the most out of your degree.
Stay Motivated to Finish Your Goal
Our own Thorin Klosowski has written about this before—how to stay motivated when you're in school. Check out the full article, but his suggestions include:
- Recalibrate your daily routine
- Try different productivity methods
- Change up your learning methods
Pick the Right School
Frank says it helps to see college as a business decision—how exactly it's going to help you reach your career objectives. With that in mind, he suggests a few important things to consider when picking a school:
- Your goals
- How a potential school can help you achieve those goals
- How much you'll have to invest
College rankings and famous professors? Less important. Frank continued:
This is why I'm a fan of public, in-state universities. Since they're subsidized, the base cost is much lower than private colleges, and their size is often an advantage. With lots of students, programs, and funding, there's plenty of opportunity for a driven student.
Ivory Tower also brings up community college. They're usually a much more affordable option, and you can always transfer somewhere else after completing core curriculum.
Trade school is another option. We've talked about this before, but here are some points to consider:
- A trade school degree will only earn you, on average, $90,000 less than bachelor's degree over thirty years.
- You can enter the workforce a couple of years earlier with trade school.
- Trade school is typically less expensive than a traditional college education.
Picking the right degree is also key. Although, as we've pointed out, you shouldn't base your decisions solely on salary statistics. Yes, some degrees might earn you more than others, on average. But if you don't enjoy what you're doing, or if it's just not up your alley, you might run the risk of not completing that degree or just not excelling with it.
Save on College Costs
Aside from scholarships, there are other ways to reduce your student loan debt burden. Frank recommends work-study aid and income from a regular part-time job.
While it takes up time, I think having a job in college is a great idea; for most of my student career, I worked around 20 hours a week. This is my "order of desirability" for part-time jobs:
- Major-area jobs that give you experience relevant to your studies
- Jobs that help you build "soft skills" - speaking, writing, leadership, empathy
- "Warm-body" jobs with down time that let you do homework
- Jobs that offer perks like free food
You might also consider reducing the number of semesters you're in college, if possible. Frank lists a few ways to make this happen:
- Ensure your graduation plan is correct, and check it often
- Test out of classes you don't need (Use CLEP or simply ask professors)
- Double dip - take classes that fill multiple requirements
He adds that, in some cases, you might even be able to bypass prerequisites simply by asking your professors and advisors.
Of course, there's also paring down your budget and cutting back on lifestyle expenses while you're in college. Frank lists a number of these options here.
Forbes runs down a handful of other ways to save money on college, including:
- Public service
- In-state tuition
Obviously, many people go on to be successful without college, regardless of the statistics. There are always exceptions to the rule. And with rising student loan costs, more people are starting to question whether that's the better route. But other experts cite the data and point out that a college education may now be more valuable than ever.