College isn’t worth the financial investment
By Roscoe Elliott
Nov. 15, 2009 9:35 p.m.
There was a story recently published by CNN about a college graduate who was suing her alma mater for a full reimbursement of her undergraduate tuition, a sum of $70,000.
The woman was having difficulty finding a job, her degree was an apparent waste of time, money and paper, and she alleged that the school had not done enough to help her gain employment.
There’s a certain expectation as a college student that a college degree will be beneficial in the long run. We are making an investment in our future ““ a rather large investment, at that ““ and we expect it to pay off.
As more people are finding out, that payoff is by no means certain. So I have to ask the question: Are the benefits from college ““ the education, connections, experiences and job opportunities ““ worth the money you are paying?
Let’s start by looking at college as purely a financial investment.
The estimated cost of attending UCLA for an in-state student is approximately $25,000 a year; for out-of-state students it is $48,000. That means, depending on residency, the average student spends either $100,000 or $200,000 over four years. And that’s excluding the interest on student loans.
When most studies measure the profitability of a college degree, they look at the average salary of college graduates and compare it with the average salary of high school graduates. From that information, it’s safe to conclude a college degree pays healthy dividends for the future.
But as we all know, not all degrees pay the same. Depending on major, by mid-career the median salary for a graduate can land anywhere between about $102,000 a year for a degree in electrical engineering and $52,000 a year for a degree in music.
That’s a ridiculously large gap.
Both of those degrees make more than the average salary for a high school graduate, which stands at $32,862, but that still doesn’t take into account the cost of college.
With this information, I wanted to do a simple test to see how my predicted lifetime income would compare to a similar investment in the S&P 500. In other words, I wanted to see which was a better investment ““ college or the stock market.
I included the equation I used to find the information so that you can see exactly how your major will compare as an investment. I’m majoring in history, which means that after subtracting the $100,000 I paid for attending an in-state university, my predicted lifetime earnings are $2.7 million.
Now let’s say instead of going to college, I started to work straight out of high school and invested what I would spend on college. If I deduct the amount I pay for room and board (theoretically I would spend the same amount for room and board if I didn’t go to college) I have around $50,000 to put in the stock market.
Even at a rate of 8 percent annualized interest, a lower average rate of return than the S&P 500 has paid out over the past 45 years, I would have predicted lifetime earnings of over $2.9 million! If I lived out of state, my earnings would be over $5.8 million.
This test definitely does not take into account a lot of factors and has a number of flaws. Not everyone has $50,000 to invest straight out of high school, and your degree is not subject to nearly as much risk as the stock market.
Still, the test gives a general comparison of how college stands as a purely financial investment, and current trends could be making that investment worse.
The price of college is skyrocketing, but employment opportunities and starting salaries for graduates are declining. As some experts have pointed out, this pattern ““ rising cost and decreasing return ““ is how bubbles are formed.
“If college costs continue to escalate at this rate, you may reach a point where the investment simply isn’t worth it,” said Charles Miller, former chairman of the U.S. Department of Education’s Commission on the Future of Higher Education, in an interview for Money Magazine.
I don’t think the bubble is going to burst anytime soon, but it’s an interesting thought to consider.
A college degree is thought to be recession-proof, but universities could face serious enrollment problems if they aren’t able to reliably provide tangible benefits to students in the future.
As the unemployment rate hits new highs (10.2 percent, the highest since 1983) students need to reconsider why they are attending college and what they are getting out of their majors.
But not everything in life is about money; even economists take into account the “psychic income” of experiences and professions.
More than anything, college is meant to be a place of inspiration where students are challenged by professors and taught to think critically. It’s a place of higher learning.
I’ll save that topic for tomorrow.
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