Commentary
Even at a steep cost, college remains an investment worth making
by Chris Farrell, MarketplaceAll right, take out your No. 2 pencils.
When it comes to a college education:
a. A record number of young adults are applying
b. Only half of undergraduates get their degree in 6 years
c. Both of the above
Students are borrowing more to pay for college because:
a. College costs have risen faster than the consumer price index
b. Family incomes have stagnated
c. Both of the above
College graduates earn:
a. About 100 percent more than their peers with only a high school diploma
b. Wages that are stagnant or down
c. Both of the above
If you answered "c" to all three questions, go to the head of the class.
Little wonder college is controversial. If you want to spark a fierce discussion at a neighborhood gathering or during a lunch break at work, ask why college is so expensive. You can really get the conversation going by adding, "Is it worth it?"
The topic animated a conversation at St. Michael's Lutheran Church in Roseville. I gave a talk on Sept. 18 about the economy and personal finances and, as always at such events, worries and doubts about the spiraling cost of college came up. Parents typically fret over how they're going to pay the bill. Grandparents are afraid about the student loan debt burden their grandchildren are taking on.
A college diploma is costly. This year, the price tag for tuition, fees, books, room, board and other expenses for an in-state student at the University of Minnesota is $23,982. An academic year at Macalester College runs to $51,417. (To figure out what a four-year degree costs, multiply these figures by 4, assume an average annual rate of 6 percent for college cost inflation ... and take two aspirin.) It isn't just that kids are living off a tight budget and a diet of Ramen noodles. So are their parents.
There is a lot to get upset about when it comes to college. The price tag isn't just high, it keeps spiraling ever upward, running about double the rate of overall consumer inflation. The financial aid process is intrusive, byzantine and arbitrary, fueling legitimate mistrust among parents about a gamed system. Students and their parents are borrowing more than ever to meet the tab, especially since the median working-age household earned roughly $6,300 less in 2010 than in 2000. The wages of college graduates over the past decade are stagnant (women) and down (men). Worse yet, far too many young adults drop out of college owing big bucks on their student loans without the benefit of a degree.
That said, the current fad for totting up a handful of negatives and dismissing the worth of college is wrongheaded. So is the fashionable emphasis on an impressive list of college dropouts — from Steve Jobs of Apple to Mark Zuckerberg of Facebook — to argue that young people can succeed without a degree.
No, the unmistakable message from the turbulent economy of recent years is that postsecondary education remains valuable in the job market, perhaps more than ever. Postsecondary education is a necessary, even if not guaranteed, ticket into a middle class job and lifestyle.
"Step back for a minute," says Terry Fitzgerald, senior economist at the Federal Reserve Bank of Minneapolis. "If I'm talking to a 17-year-old, am I really going to tell her, 'Don't go to college?' No!"
Fitzgerald is spot on. For all the legitimate controversy swirling over the costs and benefits of a college education, the real job and earnings problems in America are concentrated among workers with only a high school diploma and less. Yes, parents and students have to be wary of taking on too much debt. They should both embrace the wisdom of getting postsecondary education — from a community college certificate to a B.A. to an M.B.A. — and bring a green-eyeshade mentality to shopping for the best deal and calculating the risk and return on investment.
The U.S. economy is mired in the worst labor market since the 1930s. Some 25 million Americans are unemployed or involuntarily working part-time. Still, people with a college education are faring much better than their less-educated peers. For example, the Minnesota unemployment rate for adults 25 years and older with a bachelor's degree and higher was 3.7 percent in 2010 (the latest education-linked state data available). The comparable figure was 6.8 percent for those with an associate's degree, 8.3 percent for high school graduates and 13.5 percent for dropouts. The actual numbers are different in the national unemployment figures published monthly by the Bureau of Labor Statistics, but the significance in the percentages is the same: The more educated the workers, the lower the unemployment rate.
The result reflects deep changes in the labor market. The share of jobs requiring postsecondary education has increased from about half in the 1970s to more than three-quarters today, according to researchers at the Georgetown University Center on Education and the Workforce. More than half of the jobs requiring postsecondary education are for workers with a B.A. or higher. These jobs pay better, too. For example, in 2010 the median earnings of a college graduate 25 years or older with a B.A. or more, working full-time, were $63,265 (for men) and $45,232 (for women). Their high-school-only peers earned $32,501 and $22,452, respectively. The Smokestack America era, when a high school graduate with a strong work ethic could get a job on the factory floor and a big enough paycheck with benefits to join the middle class, is gone.
Postsecondary education is also the way of the world. Some 26 percent of young adults, or 150 million students, are enrolled in higher education worldwide, up from a fraction of 1 percent, or about half a million, in 1900. Employers everywhere that are somehow engaged with the global economy — business, government and nonprofits — demand an educated workforce that is comfortable analyzing words and numbers, at ease in a global community linked by computers. A college education is a critical certificate for getting a good job in the United States and elsewhere. It's also tightly linked to shared ideas about personal fulfillment and the good life.
The message I hope I left with the parents and grandparents at St. Michael's is this: Yes, you're right to appreciate the practical and personal value of a college degree over a student's lifetime. You're also correct in working hard at making sure your student isn't saddled with a lifetime of debt. It's the challenge of our generation.
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Chris Farrell is economics editor of American Public Media's Marketplace Money and author of "The New Frugality: How to Consume Less, Save More and Live Better." This essay originally appeared on the website for the American RadioWorks documentary, "Who Needs an English Major?" American RadioWorks will host an event at 7 tonight in the UBS Forum discussing the value of postsecondary education. Reserve your free ticket here.
Comments (3)
Surely there is a point where the costs exceed the gains. Surely that depends on the person and their goals. So why not help people make a good decision instead of making a blanket statement. The question remains do college graduates make more because they went to college? I can only assume that the author either didn't attend or didn't learn anything or else he would've known that context matters. I went to college, and I tell every high school student that I can this. You can succeed at college if that is what you want to do. You can go to college. However, you should know why you are going to college and what you intend to get out of it. You should also add up the costs and make sure you are comfortable taking out a mortgage for what you intend to get out of it. My point is that if you want to go into a field such as medicine or law that require a degree, then it is money well spent, but be aware of the gamble you are making. Someone who doesn't like being a doctor still owes the same amount of money at the end. If someone is incapable of making a calculation of how much money and how much interest they will owe, then they probably shouldn't be taking out college loans.
This topic always provides lots of humorous responses, like "If I'm talking to a 17-year-old, am I really going to tell her, 'Don't go to college?' No!" Much of what colleges are promoting as "education" is pointless navel gazing. I would strongly recommend that a 17 year old avoid most liberal arts programs, every "business" program, and pretty much anything that doesn't have a valid vocational purpose. In other words, if it's not science, engineering, or medicine, find another way to learn about it. Paying $100k for a degree in Women's Studies or Men's Studies or the History of Armpit Farting is idiotic.
There are still good and necessary trades that go without apprentices and many of those jobs are being filled by immigrants, even illegal immigrants. If those jobs don't pay appropriately, for the risk and training required, then that needs to be addressed by government. However, telling a kid who has never written a word for sale that getting an English degree is a valid credential is only stocking Starbucks with over-qualified, under-educated cheap labor. Telling kids that a History degree or a Sociology degree is a career path is dishonest at best.
"Higher education" has become an extended baby sitting service. High school has been scaled back to non-vocational, irrelevant testing and a waste of most kids' time. This is nothing more than another version of citizens being downgraded to consumers. We should be ashamed.
The problem is price. A college graduate costs $300,000. K-12 is $140,000. College is $160,000 for four years. Wrong price. Education has a negative return on investment when the 30% high school drop out rate and 50% college dropout rate are figured in.
Still it's the best of the bad programs. What else is there? Self employment? The military? College is boot camp for school teachers, managers, and the corporate people that run America. Trouble is college graduates are over paid for what they do and the risks they take. That is why everyone wants a degree. They want the money to get the status symbols. $160,000 and four years is too much to "buy a job".
College should be FREE on line. Will we ever see that day? I doubt it. Education segregation has replaced race based segregation but it's basically the same thing. Segregation.
There must be a better way than spending $300,000 and 16 years to get a job. What happened to on the job training and merit pay?
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