Sound Mind Investing - America's Premier Christian Financial Newsletter

Is a College Education Still Worth the Investment?

By Joseph Slife
© Sound Mind Investing | October 2009
In recent decades, going off to college has become the de facto expectation for students graduating from high school. A college degree is often seen as the key to launching a successful career. But the exploding costs (and related debt) associated with getting a Bachelor's degree, along with relatively fewer attractive new jobs for college grads, should prompt parents and students to reconsider whether four (or more) years of college is the best approach to post high-school education.

Social scientist Charles Murray thinks too many high school graduates go to college — perhaps five times too many. Murray isn't against post-secondary education, but he argues — based on SAT scores and other data — that most students enrolled in four-year Bachelor of Arts programs simply aren't college material. Their gifts lie in areas other than the academic.

And besides, Murray argues, except for such fields as engineering and science, a Bachelor's degree isn't a reliable measure of whether someone is truly "educated." Murray's view, detailed in his provocative 2008 book, Real Education, is decidedly contrarian in a society that seems to think that earning a college degree is not only the natural next step for high school grads but is also the basic qualification for a good-paying job.

And Murray isn't alone. In an article earlier this year, SmartMoney associate editor Jack Hough wrote that "[t]he four-year college degree has come to cost too much and prove too little." Hough argued that the Bachelor of Arts has become "a bad deal for the average student, family, employer and taxpayer."

But wait — don't college graduates earn significantly more money than people who didn't earn college degrees? Yes, typically so. For people 25 and older, the median after-tax income for those with a Bachelor's degree is $39,000; for those with only a high school diploma, the median is $24,900 (figures are based on 2005 data from the College Board).

However, such data should be viewed critically. Due to what social researchers call "selection bias," part of the variation in earnings may simply reflect that the personal qualities that drive many people to want to earn college degrees are the same qualities employers tend to find valuable (e.g., high intelligence, diligence, creativity, being goal oriented).

One could argue that such people likely would have enjoyed higher career earnings regardless of whether they earned a four-year college degree. So it's possible that the variation in earnings statistics has less to do with college itself, and more to do with which high school graduates self-selected into these two groups (i.e., those who went on to earn four-year degrees and those who didn't).

It's also important to recognize that while college graduates do tend to earn more than non-grads, many enter the work force saddled with school-related debt that lays claim to a significant percentage of their income. When monthly loan repayment amounts are subtracted from gross earnings, four-year college graduates actually tend to be at an income disadvantage to high school graduates — for many years.

According to the College Board, it takes a remarkable 14 years of work before the typical B.A. recipient reaches net-pay parity with a high-school-only graduate (see graph below). This is not only because of debt repayments, but because college grads forgo potential income while earning a degree. Personal finance writer Scott Burns summed it up this way: "During all of those 14 years, college doesn't pay. High school pays." (If the high school graduate builds up interest-earning savings during those 14 years, he or she may enjoy a financial advantage over the college grad for many more years.)

Table 1

Two more hard facts: (1) about 20 percent of students who borrow for a four-year education eventually drop out, leaving school with debt but no degree; (2) more than 40 percent of students entering four-year colleges take longer than four years to finish, substantially increasing the cost of their education.

Of course, there is no universally-common experience. Some students earn their diploma in a timely manner while incurring little or no debt, then go on to financially lucrative careers. Others take on huge amounts of college-related debt, only to end up languishing in low-paying jobs that barely provide enough income to make ends meet. Most graduates fall somewhere in between those two scenarios.

Statistics show that about two-thirds of undergraduate students borrow at least some money to pay for college, according to "The median cumulative debt among graduating Bachelor's degree recipients at four-year undergraduate schools was $19,999 in 2007-08," the site notes. "One quarter borrowed $30,526 or more, and one tenth borrowed $44,668 or more."

And those amounts are likely headed upward, given the numbers released in September by the U.S. Department of Education. The department's latest figures suggest that borrowing in the 2008-09 school year hit record levels. As reported in the Wall Street Journal, "federal student-loan disbursements — the total amount borrowed by students and received by schools — grew about 25% over the previous year."

To be sure, student-debt levels have been a concern for years. But the recession that began in late 2007 seems to have fed a growing sense that something is wrong with a system that burdens so many young people with large debt in return for a product (a Bachelor's degree) that comes with neither a guarantee as to quality nor an assurance that it will actually be the key that opens the door to career success.

Indeed, the long-held assumption that earning a college degree will yield a strong return-on-investment may be starting to crumble. The recession may be the catalyst for that crumbling, but Ohio University economics professor Richard Vedder, author of the 2004 book, Going Broke by Degree, argues that a larger trend is at work — one that transcends the current economic climate. That trend, he says, will increasingly leave holders of B.A. degrees out in the cold.

"[T]he mix between the supply of college graduates and the jobs available is moving increasingly in the direction of having fewer and fewer jobs�that really require a [four-year] college education," he told National Public Radio in September. "[I]t's becoming more and more difficult for new college graduates to get jobs, independent of the recession."


So just what are students/parents getting for their four-year-college-education dollar? That's a good bottom-line question. Unfortunately, there is no easy way to answer it. Table 2 Since the early 1980s, college tuition rates have risen much faster than the rate of overall inflation, indeed faster than increases for any other major product or service. Even after adjusting for increased financial aid, the net cost of a college education has more than quadrupled since 1982.

And yet there is no indication that those investing in an education today are getting an improved product over what was available decades ago. Indeed, the opposite may be true.

In 2006, a commission created by the Department of Education to study the college education system in the U.S. found "a remarkable absence of accountability mechanisms to ensure that colleges succeed in educating students." The Commission on the Future of Higher Education found "disturbing signs" that "many students who do earn degrees have not actually mastered the reading, writing, and thinking skills we expect of college graduates. Over the past decade, literacy among college graduates has actually declined."

Yet even as outcomes have declined, the price of the product has continued to rise. The steep increase in tuition costs is driven by many factors, not the least of which is increased demand — which in turn is influenced by the massive amounts of federal and state money poured into higher education via student grants, loans, and work-study programs.

Abundant government aid, aimed at helping students meet the cost of college, actually drives up the cost. "[T]here is ample evidence to suggest that these programs are counterproductive," a 2005 Cato Institute study concluded. "Basic economic theory suggests that the increase in demand for higher education brought about by the system of grants and loans will increase the price of higher education."

But when it comes to college-cost increases, perhaps something beyond basic economics is at work. "Prices for college have begun to follow their own peculiar logic," reporter Penelope Wang wrote last year in Money magazine. "In the absence of any objective measure of the value of an education, price becomes the default yardstick. The more expensive a college is, the better education it presumably supplies."

And so, at least to some degree, the higher-education marketplace stands basic economics on its head: prices rise so that colleges can remain competitive. This is why some schools that are not considered to be in the "elite" category have higher tuition rates than the elite schools. The price says, in effect, "We're better than the best."

Basic economics, however, can't be turned upside-down forever. Charles Miller, who chaired the previously mentioned Commission on the Future of Higher Education, told Money, "If college costs continue to escalate at this rate, you may reach a point where the investment simply isn't worth it."


Some researchers believe the financial and social realities described above will drive massive changes in the higher-education landscape over the next few years, especially given technological innovations that can cut costs and increase flexibility for students.

"The traditional model of college is changing," noted a report earlier this year from the Chronicle Research Service, affiliated with the Chronicle of Higher Education newspaper. As examples, the report cited the proliferation of for-profit colleges (where market discipline helps hold down costs), hybrid class schedules, and online learning. "The idyll of four years away from home — spent living and learning and growing into adulthood — will continue to wane," the report said.

Although technological change is part of the mix, runaway costs are the true catalyst. "The full-time residential model of higher education is getting too expensive for a larger share of the American population," the report stated. "More and more students are looking for lower-cost alternatives to attending college."

And, after years of resistance, the education marketplace is starting to respond. In early September, the Wall Street Journal reported that "[m]ore than a half-dozen schools, including Hartwick College in Oneonta, N.Y., and Lipscomb University in Nashville, have launched new three-year degree options�. Others, such as Southern New Hampshire University, are touting no-frills satellite campuses. Students there can study at an offshoot location for two years, saving 40% on regular tuition. They can transfer to the main Manchester campus, at full price, for the final two years. The students have access to the same professors, but there are no dorms, high-end gyms or cafeterias at the Salem branch. Classes meet in an office building."

Other schools are positioning themselves as a "better value" than higher-priced schools. Last winter, Augustana College in South Dakota began publishing a price comparison online, comparing its tuition with that of nine nearby schools. (Florida's Pensacola Christian College has done this for many years.) Augustana is also buying billboard space in the St. Paul-Minneapolis metropolitan area, promoting the school as "a great private college without the sticker shock," according to the Journal.

But even as some schools are seeking to attract more students by holding down costs, the notion that many young people would actually be better served by lower-cost two-year degrees — or by vocational or specialized education — rather than a Bachelor of Arts program, may be starting to foster a shift away from the B.A. as the "default" for post-high-school education.

"[A] significant subset of our population would be better off going to community colleges," economist and author Vedder noted in a September radio interview. "There are [also] career colleges and vocational schools that offer certificated training that is non-degree in nature. We still need truck drivers�[and] electricians, for example," he said on the NPR program, Tell Me More. "[So for] some people�it's a waste of money to go to a four-year school and run up a huge debt."

What all this means is that parents of today's (and tomorrow's) teenagers need to re-think the assumptions that have guided post-high-school choices for several decades.

Is earning a four-year degree really the best route? (It might be, depending on your child's gifts and field of interest.) If so, is going the route of a high-cost residential program really worth it, or would it be better to pursue a degree at a "commuter college" or perhaps a lesser-known residential school marketing itself as a "value" option? Would a two-year degree be sufficient? What about earning a degree online? Should your son or daughter consider a lower-cost (and perhaps more-marketable) education at a vocational school — or maybe a certification program in an area such as accounting or computer programming?

Some people might characterize non-B.A. approaches to post-secondary education as "settling for second best," but Real Education author Charles Murray disputes that. "[Y]ou aren't asking the kids to settle for second best," he told WORLD magazine earlier this year. "What you're doing is recasting the goal of education so it no longer is, 'get the B.A.' The goal is to bring young people to adulthood�having discovered things they enjoy doing and that they know how to do well."


All of which brings us back to the question in the title of the article: Is a traditional, four-year college education still worth the investment? The answer, of course, is "it depends." To begin with, it depends on how one defines "worth the investment." Campus life has many intangibles that aren't necessarily reflected in one's tuition bill or GPA (not the least of which is the very real possibility of finding a husband or wife).

But an even larger aspect of the "it depends" answer has to do with the student. As a former full-time college instructor, I can attest to the sad fact that some students are doing little more than wasting time and accumulating debt. This is not to say such students don't have redeeming qualities. I have taught students who likely would make highly effective salespeople, auto mechanics, fitness coaches, or musicians — maybe even a politician or two. There was no denying that they had gifts; they just weren't strongly gifted when it came to academic pursuits.

Thankfully, I have had students with genuine academic promise who were willing to work hard toward earning a degree. In pursuing a B.A., they were in their element. (Like all other teachers, I also have agonized over students who had the aptitude to be academically successful but not the commitment. These are the most frustrating kind, not unlike an athlete with great natural abilities who loafs around the practice field.)

Because the student is the real key, the decision about what kind of post-high-school education to pursue must be a personal one. Just don't assume, as many parents and students have done in recent years, that earning a B.A. at State U. or Christian Campus College is the "best" option.

Prayerfully consider the following list of ideas, asking the Lord to give you wisdom as you seek to "train up [your] child in the way he should go" (Proverbs 22:6):

Wait and work. There is no rule that says a high-school graduate must immediately enroll in college. Perhaps your son or daughter would be better served by taking a year or two to work and save. During that time, he or she can be growing in maturity and seeking the Lord about the next step.

If that step turns out to be going off to college, the money saved during the time of "sabbatical" will help cover first-year expenses. (One of our sons took a year off between high school and college; he was able to get a job that helped him hone his workplace skills, plus he earned enough to cover thousands in first-year college costs.)

Know thyself. One of the best ways for parents and students to gain confidence in making educational and vocational decisions is to get a clear picture of the young person's personality, skills, interests, and what type of work he or she is likely to find most satisfying.

Among the assessments that provide this kind of information is Career Direct, an online assessment tool from Crown Financial Ministries. Reviewing the results might make a choice between vocational education and a four-year degree much clearer. (The Career Direct assessment helped assure us that our eldest son was heading in an educational direction that matched his skills and interests.)

Study and reflect. If your child decides he or she does want to get a four-year degree at a residential school, do plenty of homework on the options, keeping in mind that cost — although very important — is only one factor among many. Other factors include such things as location, size, and spiritual life. Visit campuses if possible and ask plenty of questions.

Take tests. You can cut the cost of college significantly if your son or daughter can pass Advanced Placement or College Level Examination Program tests (both offered through the College Board — AP tests require taking related courses in high school). Students who pass these tests can gain full credit for certain courses at a fraction of the cost of tuition. Not all schools accept credit for all tests, however. (One of our sons was able to skip six entire courses by taking CLEP tests.)

Make a transfer. Another option for reducing the cost of a four-year degree is to go to a community college for the first two years, then transfer to a four-year school. (Be sure you check ahead of time about which courses will transfer.) If the student is able to live at home with parents during these two years, additional room and board expenses can be avoided.

Search for scholarships. Spend time at a library looking through books such as The Scholarship Handbook and Kaplan Scholarships. These resources, and others like them, list thousands of available scholarships and explain how to apply for them.

Explore online learning. There are two options for learning online: taking courses for credit and taking courses just for the joy of learning (no degree, but no cost either). Presumably, most young people will want to choose the former. Either way, the options are virtually (no pun intended) limitless. As seen in the graph below, online courses are being offered across the spectrum of college disciplines.

Table 3

Consider the military. Military life isn't for everyone, but entering the armed services is an excellent way to gain an excellent education at low or no cost, while also serving the nation.

As you consider these and other options, be prayerful. Pray for your children and with them, remembering that we serve a God who made each of us for a purpose, and who is fully able to guide us toward fulfilling it. "For it is God who is working in you, enabling you both to will and to act for His good purpose" (Philippians 2:13). End

Get Your Free Special Report
Seven Key Principles for Christian Investing
Download your FREE copy of Seven Key Principles
for Christian Investing
Seven Key Principles for Christian Investing
Get a Free Information Pack
What's the #1 financial mistake many Christians make? Ignoring biblical principles when managing their money and following secular advice instead. There's a better way.
> Get your FREE infopack
> SMI subscription options