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Degrees, Debt & Depreciation: Determining the Value of a College Education

by Thom Kilburn

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Scared of the real world? Well, you damn well should be. The current economic climate has presented college students and graduates with an unprecedented amount of financial grief. Heralding these challenges is the ever-increasing amount of student debt—something to which nearly every college graduate is shackled.

Despite what your grandparents say, the days of working a part-time job flipping burgers to afford a college education have long since passed. College tuition has never been more expensive and debt has been resultantly swelling.

Tuition has an annual growth rate of 7.4%, outstripping the Consumer Price Index (CPI) of 3.8% and surpassing health care increases of 5.8%. Since 1982, the cost of college has risen 439%.

“College tuition has been rising at a rate that vastly exceeds pretty much any general economic measure you want to choose,” said Glenn Reynolds, Ph. D., Professor of Law at the University of Tennessee, in a recent interview at the Atlanta Federal Public Affairs Forum.

“People have made up the difference with debt. They’ve done that because they feel that college degrees will pay back enough in increased earnings to make taking on the debt worthwhile,” said Reynolds.

Reynolds, among other economists, believes that our higher education system is creating a “bubble” that will soon pop.

Economic bubbles form when prices of investment become out of proportion with intrinsic values. When returns on the investment go down and the value depreciates—due to market fluctuations and changes in the economy—the bubble bursts.

“First—as with the housing bubble—cheap and readily available credit has let people borrow to finance education,” said Reynolds. “They’re willing to do so because of two reasons. The first being consumer ignorance, as students—and, often, their parents—don’t fully grasp just how harsh the impact of student-loan payments will be after graduation; and secondly, because a belief that whatever the cost, a college education is a necessary ticket to future prosperity.”

According to the Chronicle of Higher Education, 60% of Americans that attend college each year take out federal loans annually. This data demonstrates that as tuition rates are steadily increasing, so is the dependency on federal aid to finance a student’s college education.

But if federal aid saddles college graduates with a mountain of debt, how do students justify taking out loans to finance their education? The answer should be simple—college is often considered to be an investment.

In fact, colleges across the board market their services (an alleged invaluable education) via their promotional literature, claiming that student loans are an “investment in yourself.” However, if college graduates cannot generate the necessary income to pay off their loans, then the value of the degree in which they invested diminishes.

Value varies for everyone, though! Students attend college for a wide array of reasons: for the social experience, as a way to bolster intellect, as a means of advancing their career, for the networking opportunities, or simply for a place to discover yourself as a person, a citizen and a thinker.

However, for most, the only tangible way of measuring the value of college degree is the acquisition of a career that directly ties into what was studied. It’s no secret that jobs are scarce and that finding degree-relevant employment upon graduation can pose as a daunting task for many.

According to a study by the Georgetown Public Policy Institute, published in May 2013, the overall unemployment rate for recent college graduates with a bachelor’s degree has an unemployment rate around 7.9%. As a result, the amount of student-loan debt carried by households has more than quintupled since 1999. Nationwide, student loan debt increases by $2,853 every second. It’s already $970 billion larger than the national credit card debt.

In spite of it all, more people have college degrees than ever before. While this may appear as great news, the market has become waterlogged. Even the students who can find jobs are earning less. Even two years after getting a diploma, nearly half of college graduates earn less than $15,000 per year—and wages are falling steadily.

On the other side of the coin, and on a more optimistic note for those pursuing higher education: college graduates now make 80% more than people who only have a high-school diploma. The higher the degree, the higher the pay! For example, a recent graduate with a Bachelor’s of Fine Arts can expect to make around $30,000 per year—assuming they have found work in their field—while a graduate degree holder can expect around $55,000 per year.

Anthony Carnevale, the Director and Research Professor of the Georgetown University Center on Education, says, “Over the next decade, there will be 31 million job openings that will require at least some form of education—9 million newly created jobs along with 22 million jobs from baby boomers who are retiring. Roughly two-thirds of those jobs will require some form of education or formal training beyond high school.”

In addition to higher earnings and employment availability, college-educated people are more likely to have health and retirement benefits with their jobs.

“Over the course of a lifetime, a college degree is worth an extra $1 million in earnings [over a high school diploma],” said Carnevale. “It’s even better if you have a professional degree, like accounting. You will make $3.7 million during your career, on average. A doctor will earn $6 million.”

So what’s the point of these analyses? Well, deciding to pursue higher education at an accredited university is an enormous decision—one that requires heavy consideration, planning, and money.

There’s no question that going to college will make you a better person and broaden your horizons. However, it may be unwise to invest in a degree that might not provide you with the means to pay off the investment upon graduation. Truly take the time to consider what’s worth your time, money, and energies.

And if you do so choose to go out on a limb, (e.g. majoring in something with a narrow field of employment) be sure to wring your education for everything it’s worth. Pay acute attention in class, absorb and digest all information that penetrates your ears, make valuable connections with your superiors, and involve yourself in your academic community as much as you can.

In spite of the crippling prices of tuition, an education is only as valuable as you make it.

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