I think that we all know the answer here. It is normally yes. However, we hear stories about college graduates working at a minimum wage jobs with no hope of paying off their school loans and moving back home after college due to the debt. Thus, is going to college really worth having student loans. There are three factors that need to be determined in answering this question:
• Cost of College
• Field of Employment
• Student’s Drive & Determination
The stories of the mountains of debt that college graduates are taking out for going to college just looks at the average cost of college. Yet, there is a vast difference between costs depending where the student goes. Tuition at an in-state college can be as little as $5,000 (typically around $10,000 to $13,000 with room and board included) while tuition to a private college can be $20,000 or more. At first glance, it appears that in-state college tuition can provide more bang for the buck. Yet, there are many factors that can go into this decision:
• Will going to a more prestigious school help in future employment?
• Does a private school offer a better education for certain fields?
• Does making connections in school help later in life (e.g., connection with other Harvard or Yale graduates)?
Part of it is to understand how the cost/benefit ratio works. For each, $10,000 of debt, the annual payment for a 30-year loan at 6.5% interest rate is $766. Based on 35% tax rate, this would require a college graduate to earn an extra $1,200 a year before taxes to payoff the debt (ignoring the tax deduction for student loan interest). Thus, if college student spends $50,000 for a 4-year in-state college tuition, the break even point from an investment perspective is if his salary (with a college degree) is $6,000 or more than he would have received without the degree (note, $6,000 = $1,200 X $50,000 / $10,000). This would be a good investment based the statistics that a college graduate earns $14,000 more than a high school graduate for workers age 25 to 34 and increasing to $23,000 more for workers between age 45 to 54 according to the US Census Bureau. Thus, even though the cost of college is going up, having a college education still appears to provide a good return for the investment to a limit.
This investment may not pay off depending on the circumstances. For example, if you want to be a local school teacher and are deciding to go to an in-state college or an Ivy League college (without scholarships), the extra $80,000 to $100,000 in tuition may not even get the teacher an extra $5,000 in pay (let alone $10,000 or more needed to break even) if your school district bases salaries on tenure and not where the teacher went to school. An Ivy League degree may get a teacher a higher paying job in a private school or help him become Principle down the line; however, the extra cost may not be worth the benefit in a public school system. However, if a college graduate wants to work on Wall Street, the Ivy League degree may put him in good position to get a top-notch Wall Street job where a superior educational background may provide a higher starting salary.
Yet, an Ivy League degree will not make or break a student either. According to a Wall Street Journal article, Ivy League schools only account for 10% of Fortune 500 CEOs. In addition, there are currently more Fortune 500 CEOs from University of Wisconsin than Harvard University. Part of this could be from the size of the schools. Yet, the point is that not being able to afford an elite college education (Ivy League versus in-State University) does not doom a college graduate to a life of middle management either.
This is because what a college graduate does with a college education is more important than the piece of paper itself. Over the years, I have heard people complaining about that their college degree is useless. This is true if they are trying to rest on the laurels of a college degree. A college degree is a piece of the building block to future success. Yet, it really does not do more than get you in the door of a company to show them what you can do. Determination, desire and ability will take you the rest of the way. When I was a manager, I rather hire someone who was passionate about what they were doing and determined to show what he could do than someone who had an impressive educational background that was just looking for a higher salary.
And, not having a college education does not mean you are doomed to a life of poverty either. A friend of mine is passionate about what he does for a living. He started what he does now as a hobby at the age of 8. That hobby lead him to be a highly sought after media consultant even without a college degree. He did not finish college because he was too busy working as a consultant. As I said in Why Aren’t You Rich? It May Be Your Beliefs, a college degree just gets you in the door. What you do with the opportunity will have more of an impact on your future than the piece of paper has.
Thus before going into debt for a college education, ask the following questions:
• Am I passionate about what I want to do?
If that passion is not there, you will have a harder time sizing the opportunity that a college degree provides.
• What is the cost involved in the schools that I want to attend?
Some feel that children should get their education where ever they want to go because a college degree is such a good investment that costs should not be a factor. Yet, an investment is only as good as the actual invstement into it. Having a $100,000 school loan is going to be a burden if a student’s desire is to work in a $25,000 social work position. Yet, a $100,000 school loan is small potatoes if the student’s passion is to be a doctor or lawyer.
• Is there a way that I can try on my profession before going to school (or at least before graduation)?
A friend’s son is taking a year long paramedic program to see how it will be like working in the health care environment. He figured before spending 8 years in medical school and going $100,000 or more into debt, he wants to see what it is like to be doctor by being a paramedic first. In addition, the higher pay for a paramedic versus a fast food employee also helps with his bills.
Sometimes it is impossible for a student to try a profession (e.g., actually perform surgery), yet they can ask to shadow someone in their potential field for a few days during their summer vacation. I remember our Pediatrician having a high school student shadow her during one of our visits. People want to help students get ahead. In addition, making contacts early on can also lead to an intern position later in college.
Lastly, more and more universities are setting up free on-line recordings of their courses. Thus a high school student can listen into some of these courses to make sure that a particular major is what they want to pursue before deciding on their major.
There are no guarantees that even after all this homework that a student may not change their minds on what they want to do with their lives when they grow up. A friend of mine became a lawyer, only to realize a few years after staying home with her daughter that she doesn’t want to go back to the legal profession. Change happens. Yet, the more investigating done upfront, the better prepared a student is in making an informed decision in investing in their future.