Paying for College

Is College A Good Investment?

It’s all about ROI. That’s Return on Investment, for those of you not financially minded. The question seems to boil down to: Will I get a positive return on the time and money I put into a college education?

I saw an interesting article about this. Why College Isn’t Always A Good Financial Investment makes a challenging statement: “Given that fewer than 60% of college students obtain a degree in six years, some people may be throwing money away — and piling on student loan debt.” Ah, there’s the rub. The four-year college degree is NOT a given. The reportat the core of this article comes from the Brookings Institution: Should Everyone Go To College? It contains this dramatic proclamation:

While the average return to obtaining a college degree is clearly positive, we emphasize that it is not universally so. For certain schools, majors, occupations, and individuals, college may not be a smart investment. By telling all young people that they should go to college no matter what, we are actually doing some of them a disservice.

Whoa. Say what?! That should give the higher education mavens something to think about. Reading that “By telling all young people that they should go to college no matter what, we are actually doing some of them a disservice” makes me think about my mother serving tuna and rice casserole for dinner when I was in grade school and telling me that it was “chicken and rice.” I hated tuna when I was a kid (maybe it was the smell), so she told me her little white lie so that I would think I was eating something that was both enjoyable and good for me. That, at least in my mind, makes the “Everyone should go to college” concept the chicken-and-rice menu item at the higher education restaurant.

Let’s take a look at some of the rationale behind these contentions. If you are unsure about your motivation or need for a college education, perhaps some of this wisdom will help you make your decision.

First of all, Chris Moran, writing in his article, notes:

It’s also difficult to obtain the actual price tag on an education. The report gives the example of Vassar College, which costs nearly $50,000/year in tuition and fees, but whose graduates tend to not earn very much compared to other highly competitive schools.

Yes, if the student is taking out student loans or paying cash for her Vassar education, then this is not exactly the best financial investment. But the Brookings paper points out that 60% of students in 2012 received an average of $30,000 in financial aid. Depending on how much of that aid is made up of grants and scholarships (as opposed to loans), the Vassar return on investment can go from as low as 6% to upwards of 9%, putting it in line with other schools.

Similarly, Stephanie Owen and Isabel V. Sawhill, writing in the Brookings report state:

One way to estimate the value of education is to look at the increase in earnings associated with an additional year of schooling. However, correlation is not causation, and getting at the true causal effect of education on earnings is not so easy. The main problem is one of selection: if the smartest, most motivated people are both more likely to go to college and more likely to be financially successful, then the observed difference in earnings by years of education doesn’t measure the true effect of college.

Researchers have attempted to get around this problem of causality by employing a number of clever techniques, including, for example, comparing identical twins with different levels of education. The best studies suggest that the return to an additional year of school is around 10 percent. If we apply this 10 percent rate to the median earnings of about $30,000 for a 25- to 34-year-old high school graduate working full time in 2010, this implies that a year of college increases earnings by $3,000, and four years increases them by $12,000. Notice that this amount is less than the raw differences in earnings between high school graduates and bachelor’s degree holders of $15,000, but it is in the same ballpark. Similarly, the raw difference between high school graduates and associate’s degree holders is about $7,000, but a return of 10% would predict the causal effect of those additional two years to be $6,000.

Shucking right down to the cob, as Paul Harvey used to say, we can find 4 reasons college isn’t for everyone on MSN Money. The punchline here is: “The cost of earning a college degree can be a really bad investment. Some of you may be wise to consider the alternatives.” So, what are the four reasons? …

1. For most people, college is a really bad investment.

2. Not everybody is college material.

3. The time spent in college earning a degree can often be put to better use gaining experience.

4. There are plenty of relatively well-paying jobs available that don’t require a college degree.

Intriguing. Check out the logic there and read all about it.

What are others saying about this controversial issue? Well, what better source for insights that Yahoo! Answers? Here are two contrasting views on the question: Is college for everyone?

“Eri” says, “Nothing is for everyone. College is for people who are either very wealthy and want to learn something, or people who have a job in mind that requires a college degree, can afford to get that degree (even if it’s by taking out loans and paying them back later), and have the interest and ability to pursue higher education. People with low IQs, or people without motivation, rarely manage to finish college.”

“Jose” counters with, “I would say college can be for everyone, the issue here is that everyone needs a different type of college. It is very difficult to generalize and say that all colleges offer the same educational experience. I have been in 3 different colleges throughout my life so far and I can tell that it does make a huge difference. To give you an example, I thought I wasn’t enjoying my college experience as much as I wanted when I started studying, until I enrolled at my current college (Berkeley College in NYC.) It took some time until I figured out what factors matter to me when choosing a college, but now I’m enjoying the experience 100% …”

Wow. So college may be a bad investment and not for everyone. Could it be a bad investment for everyone? Not from where I sit. Then what’s the point of bringing up these issues?

Well, since making the decision to go or not to go to college is a significant one, you should really look at both sides of the coin. I would certainly enjoy hearing what you readers out there think about this. How about putting your thoughts in the comments box below? I think Admit This! Answers can be every bit as good as Yahoo! Answers (we both use exclamation marks in our titles!), especially when it comes to college. Give us your wisdom!


Be sure to check out all my admissions-related articles and book reviews at College Confidential.