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Is College Worth The Cost Of Student Loans?

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One of the debates going on right now, thanks to the recession and the rising cost of college, is whether or not your degree is worth the money.

Earlier this year, outstanding student loan debt surpassed credit card debt. Rising levels of college debt, combined with a tough job market, have many questioning the cost of college. According to the COUNTRY Financial Security Index, 26% of those surveyed feel that college is no longer a good financial investment. This represents a drop from 81% to 58% of people feeling college is a good investment.

Not only are more people questioning the value of college, more expect that students will help bear more of the burden. 46% of those surveyed said that they put their own retirement savings ahead of paying for a child's college experience. 78% of Americans think that college students should work part-time to help pay for college. And, of course, most people accept that public and private student loans are likely to play a big part in covering college costs, especially if college savings and scholarships don't amount to enough to pay for university.

College Costs

What Makes College Worth the Cost?

When deciding whether or not college is worth the cost, there are different factors to consider. Some of them have to do with financial trade-offs, and other considerations are more about the experience, and some of the more intangible benefits. Here some of the things to think about as you consider whether or not college is worth it:

  • Do you prefer a trade or professional certification?: In some cases, you might be better off attending a trade school or getting a professional certification. Not everyone enjoys college, and not everyone needs a degree in order to succeed. If you can make money as a dental hygienist, radiology tech, mechanic, or with some other profession, and you think you would enjoy it more, it might be worth it to consider going that route.
  • Is it reasonable to assume you will make enough money when you graduate?: Your next task is to determine whether or not you will be able to afford to repay your student loans when you are done with school. Is the major you are choosing likely to allow you to repay your student loans? Part of that consideration is the school you go to. For example, will you go to a traditional university or an online school like Phoenix University? For undergrad, I went to a small state school. It was inexpensive (especially with a scholarship), and I did well. I attended a more expensive private school for my Masters (Vs. getting an online mba). My current profession allows me to easily keep up with student loan payments.  Consider the costs, and whether you will be able to repay them.
  • What experiences will you have?: In many cases, the value of your college education boils down to what you make of it. If you take the time to get involved in resume builders and network with others, this can add a layer of value to time spent in college. You can't put a price on the value of experience, connections and opportunities to grow. If you are willing to go a little off the beaten path to make your college experience a useful one, it might be worth the price you pay.
In the end, you have to decide whether or not college can help you meet your career and income goals. If you find that college is worth the cost of student loans, and you can keep your borrowing prudently under control, you might come out ahead in the end.

Controversial Statement Of The Day: Not Everyone Should Go To College

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I‘m about to make a controversial statement. Brace yourself. Here it goes:

Not everyone should go to college.

In this day and age it has almost become an untouchable gospel that everyone should go to college, and if you don't, there's no way that you can succeed in life.  Without a 4 year degree, you might as well kiss your future life goodbye.  You'll never amount to anything!

I on the other hand would like to offer a counter argument – that not everyone should go to college.  For many it would just un-necessarily saddle them with huge mountains of debt, for a degree they aren't really going to use – or that doesn't have the value they expect it will.

Why Shouldn't Some People Go To College?

There are several reasons why I think college may not be the right choice for some people.  I'll list them out below.

A Degree Isn't What It Used To Be

A college degree isn't as highly prized as it once was.  It could almost be argued that a college degree is now worth about the same as a high school degree was in the past.

One big conclusion that can be drawn from the PayScale data is that college—and college alone—may not be the great investment it was once thought to be.  Richard Vedder, director of the Center for College Affordability & Productivity in Washington, D.C., notes that with the college-educated accounting for a larger percentage of Americans, the bachelor’s degree has been devalued, and its ROI has taken a hit. “We have credential inflation in America. A college degree has become mundane and ordinary,” Vedder said. “We used to send kids to college to become lawyers and doctors. Now we send them to college to work at Walmart.”

The Return On Investment Isn't As Great As Some Would Have You Believe

The ROI that you'll get by graduating and getting your degree isn't as great as some might have you believe.  In the past it was assumed that most people could expect to earn anywhere from $900,000-$1,600,000 more over a working lifetime just because they got a degree.  A study released by Payscale.com found, however, that the return on investment for those who got a degree was much lower than that for most colleges and majors.  The study found that the ROI for a college degree was anywhere from just under $400,000 to just over $600,000.    That is still a substantial amount, and for many that will be enough, but remember to go in with eyes wide open, and realize that it may not be as great as you had hoped.  The ROI will vary greatly by major and specialization as well.

Not Everyone Needs A 4 Year Degree

Far too often people that don't really even need to go to a 4 year school end up going and piling up a mountain of debt.  Instead for many of them they could have attended a cheaper 2 year trade or vocational school, picked up a useful trade, and found a good paying job – without all of the hefty school loans.    My wife is one example.  Instead of attending a 4 year school like many of her friends (who ended up just having kids and not needing a degree anyway) she attended a 2 year school in a specialty she enjoyed.  She loved it, and didn't spend nearly as much as her peers – who ended up not using their expensive degrees!

Advanced Degrees Often Lead To Higher Consumption Spending Behavior

One thing that people don't often talk about is how you may end up with a higher paying job when you get an advanced degree, but quite often it also comes along with learned high consumption spending behavior as well.    When we're in school for a long period of time we learn that it is accepted behavior for those with an advanced degree to be high earners, and also high spenders.  Thomas J. Stanley explains via an example in his book the Millionaire Next Door:

Being well educated has certain economic drawbacks.

Victor’s well-educated adult children have learned that a high level of consumption is expected of people who spend many years in college and professional schools. Today his children are under accumulators of wealth. They are the opposite of their father, the blue-collar, successful business owner. His children have become Americanized. They are part of the high-consuming, employment-postponing generation.

Going To College Is Still A Good Bet For Many

Ok, now that I've spent an entire post talking about the downsides of getting a 4 year college degree, I want to make sure that I mention that I still think that college is a good bet for many people.

Studies showed that people who saw an especially good ROI on their education include those in technical and engineering schools, and those that required an advanced degree to get certified (lawyers/doctors).

If you are going to go to college, make sure that you're shopping around for the best school for your major, at the best price. You'll often find that the schools where you get your best return on your  money aren't the ones you thought they might be.  So be sure to do y0ur due diligence.

What do you think about college education – is it pushed on far too many kids who aren't ready for it, or on others who may not necessarily need to go to college?  Tell us your thoughts in the comments.