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.
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.
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.
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.
- 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.
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.
What about that last 650,000?
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.