At What Price?
By Andy Valencia
It’s hardly worth printing as news: college is horrendously expensive. Over the span of my life, its price has doubled several times. When making financial decisions, there’s the useful concept of cost versus benefit. You spend a certain amount of, say, money. And in return you receive something of a certain value. If the cost goes up for the same benefit, its value as a deal has diminished. The ratio helps you stay aware.
A decade or so ago, a famous article argued that you should not send your kids to college. The author priced a college year at $26,000 for tuition, books, room, and board. He also noted that only 54% of students finish college within six years. The venerable old organization College Board at that time estimated the lifetime monetary benefit of a college education at $800,000. It sounds impressive, but the article pointed to their trick, which was to ignore the “time value of money.” If you took that same 6 x $26,000 = $156,000 and invested it in a stock market index fund with an average return of 10%, over a 50-year lifespan, you’d end up with $18,000,000. Yes, 18 million dollars. If you invest your money in a degree, and make $800,000 over the span of your life … or you keep your money, and end up with $18,000,000.
Fast forward to 2023. Within my immediate personal circle I’ve been exposed to modern college pricing. That same six years would now be 6 x $76,396 = $458,376. Invested rather than paid to the university would give a “lifetime benefit” of almost $54,000,000. Fifty-four million dollars.
Obviously, College Board will have updated their estimates of what sort of lifetime financial benefit a college degree delivers. I perused their web site, and even downloaded what appeared to be the relevant report. I found no bold $800,000 claims; in their place was surprisingly elusive verbiage which had the flavor of a lawyer’s careful vetting.
I notice that one well-known survey finds more than half of college graduates return to living at home, and less than half land a job which uses their degree. If I was selling the idea of a college degree in this environment, I’d be careful about the monetary claims I make. Perhaps College Board agrees with me?
People’s income has not kept up with college costs; neither have the salaries you can expect to receive with your college degree. The costs go up far beyond the apparent benefit; why do people keep buying? When the usual forces of capitalism have apparently disappeared, you should look for the hand of government. You don’t have to look far: it’s all about debt.
There’s $1.77 trillion in outstanding student debt. Remember, a trillion is a thousand billion, and a billion is a thousand million, and a million is a thousand thousand. $1.77 trillion would give each United States resident about $5,000. Or stacked as one-dollar bills, the stack would be more than 115,000 miles high – roughly halfway to the moon. It’s a lot of debt.
Student debt is a special kind of debt; you can’t get rid of it by declaring bankruptcy. Debt slavery, which our forefathers fled when they came to this continent, returned under Democrat Jimmy Carter. He was followed by Republican Ronald Reagan, who strengthened these provisions of our bankruptcy law. It was bipartisan action which gave the bankers the return of inescapable debt. All they had to do after this was wait for the inevitable, mathematic consequences. They now hold $1.77 trillion of the very best kind of Old World debt.
There are careers where college degrees are essential. You want to be a civil engineer and design bridges? Or you want to be a medical doctor? A degree is essential, and it’s rational to grit your teeth and pay for the degree. Hopefully, after doing some shopping and some bargaining!
On the other hand, many plumbers and electricians will hire entry workers, and train you. After looking at the college numbers, doesn’t it seem remarkable to earn a living while you learn a valuable trade? After six years, your college-bound friend emerged with perhaps $458,376 in debt. Over that same six years, you could average a $72,000 salary and have earned $432,000. Your college peer is just entering the job market, where your six years experience in plumbing has probably brought you to the “master plumber” category – commanding an excellent salary. Or ready to start your own business.
When does holding a college degree stop being an indication of expertise, and start being a flag that you aren’t good at financial decisions? In an upcoming issue, we’ll cover the unexpectedly wide range of jobs that do not actually require a college degree. It’s high time to rein in an industry that has blighted the prospects of so many young adults.