A New York Times article this week renewed the debate of whether a college degree is worth the expense. Some blogs and financial sites call this a “new” debate or a “new study.” There is nothing NEW about this discussion. The expected lifetime earnings of college graduates has virtually always and continues to be significantly greater than those without degrees (currently nearly twice the amount).
That said, however, and given the widespread rush around the country to decry the value of financial investment in our own higher education since the recession, some believe this finding is somehow counter intuitive. Can we put this concern to bed, please?! It is NOT really up for debate, any more so than whether a healthy diet and active lifestyle leads to greater longevity. Both should be seen and accepted as general rules with few individual exceptions.
The discussion should not so much be about whether we earn more with each additional advanced degree but rather about how we should minimize our expenses in school and the amount student loan debt we incur. Like many of my generation, when I was offered a student loan (subsidized or not), I took the whole thing. I then, dare I admit, used that borrowed money to supplement a lifestyle I could not otherwise have afforded: I ate out more often, I purchased newer technology, I drove nicer transportation, I participated in more expensive activities with my friends and roommates, etc. From my experience teaching financial education workshops to college students over the past 10 years or so, little has changed for the better.
I’m not saying that college isn’t expensive (and becoming more so all the time). I think our FIRST step, though, should be to educate our potential college students about the expense of borrowing and what that money should be (and NOT be) used for. $30,000 of student loan debt at 6% interest, paid off over 10 years, means the graduate will pay about $333 a month and will pay back in total nearly $40,000!
SECOND, we need to discuss with these (usually) young people that while degrees within the same university often have similar tuition costs, their financial value after college are rarely equal. A bachelor’s degree in arts or counseling psychology will rarely lead to a salary as significant as those earned by someone with an engineering degree. So their return on investment will be very different. Again, I’m not arguing against one degree or another, but the student should not go into college with rose-tinted classes thinking that all degrees are created equal (or that they pay equally).
THIRD, potential college students need to head off to school with realistic expectations of a college lifestyle. Graduating with nearly $30,000 of student loan debt (much of it used to supplement lifestyle rather than for school-related expenses) and $3,000 to $5,000 in credit card debt means that they will be making significant monthly payments to lenders after college (the minimum payment on the credit debt alone will likely be somewhere between $75 and $125 or more).
FINALLY, the potential student needs to have a realistic understanding of what their degree will mean to their post-graduation income. NACE provides a snapshot of what graduates can realistically expect to earn after college by major. To a 22- or 23-year old graduate, $45,000 might seem like a lot. But it doesn’t take much more than rent at an upscale apartment, a new car/SUV payment, dining out regularly, a new wardrobe, a trip or two each year to somewhere “nice,” and their student loan and credit card payments to put them in the paycheck-to-paycheck lifelong pipeline.
Hopefully, our young people are getting this information. The sad reality, though is that while we are continually improving in our efforts to get kids to understand the importance of a college education (or other post-high school training), we still fail pretty miserably in teaching them financial hows and whys of college degrees.
If you know someone heading to college soon (within the next few months or couple of years), make sure they’re financially educated ahead of time. We have a number of webinars available to start the process, but there are many others out there as well. Just start them somewhere!
Have a great week!