BURLINGTON, Vt. — Late summer is when parents bring their children to college. As they drive to campus they’re worried about tuition increases, the burden of student debt and whether their children will find jobs when they graduate.
Some parents and high-school students are beginning to question the value of a four-year college degree in this post-Great Recession world. And you can certainly understand why they have these concerns:
College costs keep rising. The College Board reports that from 1981 to 2011, after adjusting for inflation, the average published cost of going to college is up 180% for private, nonprofit four-year colleges and 268% for in-state, public four-year colleges.
Family income and net worth is down. The College Board indicates that the increase in median family income, adjusted for inflation, was up only 17.8% from 1981 to 2011. Largely due to the Great Recession, inflation-adjusted median family income dropped 8% and net worth dropped 39% from 2007 to 2010, according to a recent Federal Reserve study. Much of this net worth drop is attributable to a decrease in home values.
Student loans are on the rise. The Project for Student Debt notes that the average amount of federal student loan debt held by two-thirds of graduating seniors has increased from $18,259 in 2005 to $25,250 in 2010 (a 38% increase). This average debt doesn't include private loans or credit card debt held by these grads. Student loan debt is now larger than total credit card, auto loan or home-equity debt. Since 2005 student loan debt has increased from $363 billion to $904 billion, according to the Federal Reserve Bank of New York, and the number of individuals with student loan debt has increased by 61%. And defaults are on the rise — the Fed estimates that there were 20 million student loan borrowers in 2010 in loan repayment mode, and 5.4 million of these borrowers were delinquent on their loans.
The job market for recent college grads is grim and incomes are down. The unemployment rate for all college graduates over 25 years old is currently 4.1%, less than half of the national unemployment rate of 8.3%. But a recent Economic Policy Institute study reports that the unemployment rate is 9.4% for college grads ages 21 to 24 (not currently seeking a post graduate degree), and the underemployment rate for this group is 19.1% (this includes part-time workers who want full-time jobs). In 2011, those grads lucky enough to have a full-time job earned an average of $35,000 a year, a 5.4% inflation adjusted decrease from 2000 average income. Finally, it is estimated that nearly 4 of 10 grads are working in fields that don't require a college degree (the college-grad barista syndrome).
Despite all this gloomy data, getting a bachelor’s degree is still worth the cost and effort. Why? For one simple reason — the alternative of not having a college degree is so much worse:
Recent high school grads’ unemployment rates are frightening. The Economic Policy Institute study shows that the recent unemployment rate for high school graduates between age 17 and 20 who aren't enrolled in additional schooling is 31.1%. And their underemployment rate is 50.4%.
All post-Great Recession job gains have gone to those with more education. A recent Georgetown University Study notes that 3.4 million jobs have been created since the recovery began. All of these post-Great Recession jobs have gone to workers with an education beyond high school. For those with a bachelor’s degree or better, jobs have increased by 2 million. For those with an associate degree or some college education, jobs have increased by 1.6 million. For those with a high-school diploma or less, jobs have continued to decrease by 200,000 since the recovery began. Clearly an education beyond high school is important in today’s job market.
Do one thing and you’ll earn $1 million. Get a college degree. Someone with just a high-school diploma will earn median lifetime earnings of $1.3 million and someone with a bachelor’s degree will earn $2.3 million in median lifetime earnings according to a Georgetown University study.
Only the wealthy pay the college sticker price. The College Board notes that most students who go to college receive grants and most parents receive federal income tax benefits. Regardless of tuition increases already mentioned, what people actually paid for this college experience, after taking into account grants from all sources and federal tax benefits, increased on average by 26% for private, nonprofit four-year colleges and 44% for in-state, public four-year colleges over the past 15 years (1996-2011), adjusted for inflation. Families in 2011-12 received the following average college sticker price discount (tuition, fees, room and board): 40% for a private, nonprofit four-year college; and a 34% for an in-state, public four-year college.
Student loans have low interest rates. Federal direct subsidized student loans for folks that can demonstrate financial need currently charge an interest rate of only 3.4 % for undergraduate students. If you need a loan, at least the costs of these loans are at historically low rates.
Demographics are your friend. There are approximately 78 million baby boomers that will be turning 65 years old between 2011 and 2029. Their retirements will create many job openings. What seems like a drought of jobs today could turn into a jobs flood in future years. Remember, demographics are very powerful.
A college degree doesn't come with a job guarantee — but it sure beats the alternative.
John Pelletier is director of the Center for Financial Literacy at Champlain College and formerly chief operating officer of Natixis Global Associates and chief legal officer of Eaton Vance Corp.