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September 14, 2023
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.”
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.
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.
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.
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.
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.
Research from 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:
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.
Among White bachelor’s degree families, the:
For Black families:
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.”
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.
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:
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.
You can always try to run and compare “what if” scenarios in the NewRetirement 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:
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.
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