The Cost of Higher Education. Is it Worth the Investment?
Bruce Angeli
Vice President, PBS News Hour Corporate Marketing, Principal Bruce C. Angeli LLC, Accredited Investor
As I write this blog it’s graduation season. In a few short weeks proms will be over and an estimated (1)3-million high school graduates will begin the next chapter of their post-secondary school education lives. If you’re curious about where these high school graduates come from and other demographic statistical data here’s link to some helpful information:
Despite the second, third or fourth marriages I hear about, there is some truth to the adage that as one ages there’s a realization that learning is a life-long process. However, this is not necessarily a salient fact to an 18-year-old. There are a lot of thoughts going through one’s mind at this age. For many, college looms, wrought with both excitement and uncertainty; untethered from home and independent. For others, it’s a job or training for one of any number of skills that do not necessarily require a four-year (or more) degree.
If it’s the former and the student is from a reasonably competitive public or private school this past year has been populated with, among other things, the rigors of AP courses and tests, selecting one’s schools of choice, the anxiousness of acceptance (or not) and for many parents the costs associated with furthering a child’s formal education.
Early in the fall we as parents may have attended one or more seminars on college financial aid. These forums likely included the financial aid forms that are required and when each had to be submitted. These are the FAFSA (Free Application for Federal Student Aid) and the CSS (Financial Aid Profile). While the former is used for student loans obtained with a federal government guarantee, the latter is used by many colleges and universities to also assess need-based financial aid. Make too much dough, you’re out of luck!
It’s at this point that many parents, including this writer, ask “Why does college cost so much?” Is there a relationship to inflation? Not likely. The following graph illustrates the historically low level of inflation based on the CPI. It’s important to note that this measure of inflation does not include food or energy because of the volatility associated with these costs. However, those of us who pay for the food and energy we use know that this exclusion is a fallacy; one that has a direct impact on our household budgets.
One of the factors used by some researchers to validate the ‘value’ (not cost) of a four-year degree is the earning power afforded the college graduate over a lifetime of work versus, by comparison, the high school graduate without a four-year degree. This is illustrated in the (2)graph below.
The calculus here suggests that at age 52, both lines start a downward trajectory. I’m sure that those in this group that have been ‘laid off’ or 'downsized' for a variety of reasons can relate directly to this income reduction. Ironically, for many, this is about the age that one’s child(ren) begin college.
Getting back to the ‘cost’ factors of this higher education function that seem to give many parents a hollow feeling in the pit of one’s stomach and likely their investment portfolio, too, what is it that’s driving the cost increases illustrated in the following (3)graph?
Bear in mind that this illustration is tuition-only specific. Add in room, board, fees, etc. and the cost factor can easily increase by a factor of 1.75!
There’s a lot to be said for being a saver and/or having other financial resources from which to draw (i.e. generous family, athletic, academic or myriad alternative scholarships, etc.). Nevertheless, the financial commitment is daunting. But, it’s hard to save, right? There’s a reason for that. Can you believe it’s been nearly ten years since the end of the Great Recession? That’s March of 2009. (4)Yet, nearly half of American households, 49%, still live paycheck to paycheck. (5)Let’s look at the increasing costs of key major line items in a household budget and compare these increases to the climbing cost of college.
Hospital services is the only cost in a household budget that exceeds the cost of college and related expenses. (6)Since the Great Recession housing values for some areas of the country remain sluggish – real estate is local - and (7)wage growth, a function of productivity and necessary to cover these expenses above and more has been flat. Framed in this manner it’s easy to see why saving for college is a difficult task for many families.
(8)There is a skills gap that exists in the U.S. and it’s causing a lot of concern among businesses and government policy makers. The question to be answered is whether filling this gap requires a college degree. And, if so, is it worth it? I submit that the answer can be found with the type of skills gap one is seeking to fill. TV personality Mike Rowe provides an interesting narrative in this regard and the value of the type of skills one possesses or needs to learn. Simply click on the link for this enlightening video.
It is rare today that when a student graduates college it’s done so debt free. (9)In fact, both the total amount of debt outstanding and the student loan debt delinquency rates are increasing, with nearly a quarter of millennials holding this debt anticipating some level of forgiveness. Truly, hope, misplaced or otherwise, springs eternal.
(10) Student loan debt is now the second highest consumer debt category - behind only mortgage debt - and higher than both credit cards and auto loans. When I look at this graph I cannot avoid thinking about the similarities to the mortgage debt crisis that precipitated the Great Recession.
Beginning one’s professional life deeply in debt with annual net (take home) compensation that’s less than $30K annually sets limits on what can realistically be done. This extends to household formation, renting or purchasing a home, purchasing food - what, where and when to eat, leasing or purchasing a car, starting a family, when and where to take a vacation and other intrinsic quality of life factors.
Candidly, the reasons behind the increasing costs associated with college are not much different than what many of us have encountered locally. Towns and cities increase taxes to pay for municipal and/or school budgets. States, too, face a similar set of circumstances. The key is to understand the cause-effect nature of the dramatic college cost increases.
(11)Today’s students demand and expect much more in terms of services outside of the classroom. These expectations are wide-ranging and include amenities in living space (i.e. air conditioning, kitchens, privacy, etc.) recreation, open space, environmental sustainability and more. Schools that have a significant research commitment spend more in this area. Coupled with increasing costs of healthcare, pensions and other contractually-obligated line items associated with employees and cuts in outside (state and federal) funding, plus the costs supporting a school’s physical plant . . . well, one can draw an apt conclusion for why these college costs keep increasing.
The Delta Cost Project did a detailed study of college revenue and expenditures. A link to its instructive report may be accessed here:
I spent six years (four active, two reserve) in the USAF after college in the late 1970’s. Altruism for wanting to serve aside, for its time, I also had a significant amount of student debt associated with my undergraduate degree from an expensive private college in Boston. The military allowed me to first, defer payment for three years and second, the Air Force paid for my graduate school. College was a tremendously formative experience for me and it was worth every dollar invested. However, this isn’t the case for every high school graduate. Decisions confer outcomes and this important decision is one that’s very personal.
I wish my child well as she embarks on her college journey. She is among the fortunate. Her post-university debt will be minimal to non-existent. I hope she finds her course of study as rewarding and transformative as I found mine. Equally as important is her appreciation of the very expensive gift of knowledge to launch her professional life; it’s a gift from her parents and family, some now gone, who love(d) her very much.
Please enjoy the music via this link as you read this blog:
(1) National Center for Educational Statistics
(2) https://marginalrevolution.com/marginalrevolution/2011/06/education-and-raises.html
(4) https://www.cnbc.com/2017/06/29/heres-how-many-americans-are-living-paycheck-to-paycheck.html
(5) Graph, American Enterprise Institute
(8) https://thehill.com/homenews/state-watch/373527-us-economy-faces-impending-skills-gap
(9) https://www.zerohedge.com/news/2014-11-13/24-millennials-expect-student-loan-forgiveness
(11) Delta Cost Project
Business Consultant @ cfquirin.com | Digital Marketing Certificate
6 年My response is,college has never been an ROI investment in my mind. I sat in way too many classes that had zero value, by virtue of how the subject and material were presented, and the lack of connection with my own goals for future success. Specific curriculum to accelerate learning in a desired major. 2 years / 24 months and then get a job not 4 years of academic nonsense. My rant is over