Why College is Often Not Worth the Cost

why student loans are often not worth the cost

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Most of the articles that tackle the question of whether college is worth the cost inexplicably conclude “of course!” But just thinking broadly about student loans, it’s a recipe for disaster. We’re telling kids their whole lives that they need to go to college, any college, in order to succeed. Then when they’re 18, colleges push them towards tens or hundreds of thousands of debt. Students go to questionable institutions and obtain degrees in majors that aren’t applicable to jobs in the workforce.  Furthermore, many entry-level wages aren’t high enough to comfortably cover the costs of big-city life and  student loans. How can anyone think this is an unequivocally good idea?

Why I Doubt The Statistics About College

The common refrain is that a college graduate will make $1M more than a high school graduate over a lifetime. Other studies show that high school graduates end up with a higher net worth than college students over a lifetime, even if the high school graduate works as a janitor. Another analysis states that the $1M figure fails to take into account graduates who take longer than 4 years to graduate, progressive taxes, present value dollars or those that make high incomes based on graduate school (lawyers, doctors, CEOs) and not college. Even a college proponent argues that the figure is closer to $400,000 and with college tuition topping $160k at 7% interest rates at many institutions, that might mean college proponents are saying the best case scenario is a break-even. Further complicating the matter is that these studies and estimates are from college students who graduated decades ago, and what was true for them is not necessarily true for students today.

Figuring out whether college is worth it is confounded by the fact that people who go to college tend to be fundamentally different people than those that don’t go. For instance, most people who graduate college are from the upper or upper middle classes. 77% of the bachelor’s degrees awarded are from people who grew up in the top half of the income distribution, and 50% from the top quarter. As the New York Times provocatively wrote, some colleges have more students from the 1% than the bottom 60%. So when the statistics talk about better outcomes for people who go to college, there’s a correlation – wealthier people go to college and wealthier people tend to have better outcomes. Bright, conscientious people tend to go to college and bright, conscientious people have better outcomes. College is irrelevant.

Why Student Loans are Not “Good Debt”

When people say that student loans are “good debt,” they are basing this off the faulty premise that the loans will be easily paid off because college is obviously a good investment.
But I don’t think the evidence is there that college is a good investment for everyone. It may be a good investment for the majority of people who graduate from college – who tend to be wealthy. The problem is, we have to remember that most of the people weighing the benefits of college are not wealthy (i.e. if you are wealthy, you pretty much assume you go to college but if you’re not, you weigh the options). When we are talking about people who are doing well with college degrees, most of these people come from wealthy backgrounds and have a lot of advantages besides a college degree. These are people who likely have well-off parents, who can help with loans.  If things don’t work out well, these kids can stay at their parents’ house while they pay down debt.

I think we are misleading a lot of people who don’t have these advantages. Saying college is a sure thing and saying college loans are “good debt” is not a victimless crime. With hundreds of thousands in student loans being given out like candy to people who will be unable to pay them back – mindless college cheerleading can set people back in their finances in an irreversible way that even a stupid decision like buying a sportscar cannot.

I wanted to give a more in-depth look into whether student loans are worth it. I will admit that some of this math is fuzzy because it comes from different years and different surveys and most of the statistics are several years old. I’m also conflating the idea of going to college with the idea of taking student loans, to a certain extent, because they are intertwined in the type of analysis I’m trying to provide. This is all to get a general picture, not write a thesis.

Why Student Loans are Often Not a Good Idea

Let’s talk about why student loans tend to be a bad idea. Let’s look at which students benefited from taking on student loan debt. In 2012, 71 percent of students graduating from four-year colleges had student loan debt (The site states that 71% represents 1.3M people, and thus, that must mean approximately 1.8M people graduated in 2012).

So this means 29% of graduates did not have student loan debt. And I think we can agree that those people did not benefit from taking on debt (because they didn’t take on debt) and would not have benefited from taking on debt. You could say, it doesn’t make sense to take on debt when you have cash – but that’s not true. Even though the rich may have cash, the rich take on multi-million dollar mortgages because the interest rates are so low and they can make more money by investing it. In contrast, rich people aren’t taking on student loan debt if they have the money because  student loan rates are quite high. If you have the cash, you can take on the debt if it makes sense to you – as the rich do with mortgages. The rich are not taking on student loan debt needlessly though. 

Anyway, back to the 29%. Whether they were on scholarship or their parents paid for it, this 29% of people will be included in the group of people where college pays off for them, and it’s likely that these people will do very well. They are either rich or smart/talented enough to go to college for free.  While these people will be counted in the statistics for “college is a great idea!” they are likely people who would have done well without college. Anyway, I will count them in a group of people for whom student loans did not benefit. So this is 550,000 people.

Note also that the 71% statistic of students covers only those who are “graduating.” Only 41% of students graduate from a 4-year college within 4 years. If approximately 1.8M people graduated college in 2012, representing 41% of the people who entered college around 2008, that means 4.4M people were enrolled, and 2.6M did NOT graduate. Most of the non-graduates cite money as the reason for not being able to graduate. And if those nongraduates have debt, you couldn’t say that debt would have been good for them. (And if they didn’t have debt, again, taking out debt would not have benefited them). You might point to outliers like Bill Gates or Mark Zuckerberg as dropouts who come from the wealthy classes, but yeah, those people also did not benefit from student loans. Non-graduates don’t benefit from loans.

So far, of the 4.4M people who attended college, over 3.1M (550,000+2.6M) did not benefit from student loans because they didn’t use them or didn’t get a degree. That’s already 70%. What about the last 1.3M? Here are some statistics to chew on.
  • 17% of those with student loans owe more than $50k (5% over $100k). Those people seem unlikely to do well, so encumbered by debt.
  • 43% of college graduates are underemployed in their first job, meaning they work at jobs they have don’t require a bachelor’s degree. Of course, there is something to be said for if you have a college degree, you’re probably taking that janitorial job away from someone without one. However, it’s also possible that someone without a college degree was doing a great job as a janitor and would keep you from  that job.
  • In 2012, 44% of borrowers in 2007-08 took an undesirable job or job outside their field due to education cost.
  • Based on projections, nearly 40% of borrowers may default on their student loans by 2023. Currently, 1 in 8 student loans is in default.
  • At 15% of 4-year private and public nonprofit schools, 15 percent of students earn less than $25,000 per year, even a decade after they first enrolled.  The data is worse for 2-year and for profit schools.
  • Approximately 37% of college graduates obtain graduate degrees. Granted, one can only go to graduate school after obtaining a bachelor’s degree but I want to figure out the value of a college degree, not a graduate degree. Doctors and lawyers and MBAs are going to lift the median earnings for college graduates. Furthermore, many people likely went to graduate school because they did not think their college degree was sufficiently competitive in the marketplace.
Some think it’s way worse: Peter Cappelli, a professor at the University of Pennsylvania’s Wharton School, lays out a guide for families in making this so-called ROI calculation in his new book, Will College Pay Off?: A Guide to the Most Important Financial Decision You’ll Ever Make:
Looking at the actual return on the costs of attending college, careful analyses suggest that the payoff from many college programs — as much as one in four — is actually negative. Incredibly, the schools seem to add nothing to the market value of the students.
So let’s say with 44% of borrowers taking undesirable or out of field jobs, 40% of borrowers set to default and 43% under- or unemployed, 37% went to graduate school and all the other statistics mentioned above – I have no way of knowing where these statistics overlap but let’s say on the low-end and for ease, that there is near 100% overlap of these data points and that approximately half of people who took out loans for college are not getting their money’s worth. (For instance, someone with over $50,000 in debt who is underemployed is also likely to default). That’s 650,000.

What about that last 650,000?

So I’m going to say that this is the group of people who didn’t take out too much debt and have been steadily employed at above-average paying jobs. What does it mean to take on average debt? I don’t know how to vet this last 650,000 for success.
But remember that approximately 4.4M go to college and 650,000 are doing well even after taking out loans (I assume this number of people is doing very well in order to balance out the people who are not doing well in terms of income or jobs). That’s 15%. You have to ask yourself, are you going to be in that top 15%? It seems a little bit crazy to go so far into debt for an outcome that is only worth it for 15% or fewer of the people. At this rate, maybe you’d be better off starting your own company. The risk levels seem similar.
Student loans from college are hardly a sure pathway to success. If you still don’t believe me, you can read one of the 8 million hits for “student loan horror stories.”

Should you to go to college?

I started college almost 20 years ago. I went to a well-regarded public school in-state and my parents were able to afford my tuition and expenses because they had high-paying jobs and the tuition was more affordable. Today, the tuition and rents at the same school in the same town have quadrupled – but pay has not. Though it made total sense for me to go to college 20 years ago, it might not make sense for me to make the same choices today. A lot changes in 20 years. Beware of people who look back at their own lives as evidence that college is a good investment today. Past performance is not indicative of future performance and that person isn’t you.

Even if you’re not in a financial position to go to college (given the cost and your family’s finances), it seems like you still don’t have a lot of options. A lot of companies are holding students hostage by requiring college degrees for positions that never used to require them.

I think if you can afford to go to a top college without accruing a lot of debt, it will likely be a good choice. For those eyeing massive student loan debts in order to chase one’s college dreams, I hope you would consider that, college and student loans are a calculated risk. It might pay off, but it could very well be a huge mistake.  One should consider every opportunity to save money such as :

  • Taking many AP courses in high school to qualify for college credit
  • Attending community college for the first two years and/or taking classes at the community college in high school or over the summer to save on credits at a more expensive school
  • Applying for many scholarships and financial aid
  • Delaying college until you know what you want to study and working in-between
  • Working part-time in college (I knew a few people who worked full-time while maintaining a full course load, as well)
  • Graduating early

College can be a wonderful asset to your career and a fun and rewarding four years – but don’t get blinded by the fantasy and ignore the finances.


7 thoughts on “Why College is Often Not Worth the Cost

  1. There are a lot of positives to going to college–but there are a lot of people out there who don’t want to think of “college” as two years at a community college followed by two year at State U, which can be had most places (tuition and fees, not room and board) for under $10,000 per year.

    Saint “Whose that” (small liberal arts school unknown outside your region) will charge you $30,000 per year or more to earn the same degree, and chances are no one is going to pay you more because you graduated from Saint___ than from State U. Student loans do not pay off for people who spend lots of money on a degree that doesn’t put them on track for a high-paying job.

  2. What a thorough treatment of the topic! As an engineer my 4 year degree at an economical state U paid off tremendously but at the plant I ran I had lots of union hourly workers who had degrees they did not need for their great six figure jobs as process operators. I think we are at a tipping point where more young people will forego college in favor of a skilled trade or boot camp training in coding instead of a liberal arts degree in a non-vocational major. With a little effort you can pick up as much breadth of knowledge as you want on the web so college is not as necessary to become well rounded as it used to be. But to be a doc, non-computer engineer or lawyer it still is mandatory.

  3. it’s hard to say also how many people use their student loans unwisely. some might be buying wardrobes or takeout food or spring break, etc. i’m glad i don’t have to sort through this nonsense with no offspring in our house.

  4. It always surprises me how a student can borrow the same amount, regardless of major. Why not cap borrowings based on majors? Accounting, Engineering, and Medicine? Sure, I’ll make that loan.

    Philosophy? Sounds like something you should use your own money on

  5. There are a lot of resources (websites/apps) that is focused solely on scholarships. I think students would save a lot of money if they looked into things like that and researched well

  6. Very nice overview of the topic. I’d agree with another comment on here that says it also depends on the individuals attitude to money. What they are buying and why throughout their college years. The choice to go to college should also largely depends on future aspirations and what one wants to do. Your post has given me the idea to also write a blog post on what should affect your decision to attend college or not, and how it can affect your future.

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