Does a College Education Pay Off?

It feels like more than ever, our world requires a college degree.

Georgetown University's Center on Education and the Workforce predicted eight years ago that by 2020, 65% of the nation's jobs would require postsecondary education.

In 2018, 70% of workers were in those jobs, meaning that we have become even more educated than economists previously thought we would need to be. 

Georgetown's predictions for 2027 will publish soon and are similar to its past ones. There will be fewer jobs available for those without any type of post-high school degree. And more job opportunities will be available for employees with at least an associate degree. 

These days, with only a high school diploma, it can be challenging to earn enough to achieve the exalted status of “middle class.”

American Public Media reports that “the wage gap between people who have bachelor's degrees and people with only a high school diploma has nearly doubled since the early 1980s.”

But, at the same time, the financial burden of college degree programs continues to skyrocket.

ProPublica reports the cost of public colleges and in-state tuition rose by 80 percent from 2000 to 2014, while during the same period, median incomes dropped by 7%.

And the Education Data Initiative calculates that tuition and fees have increased 130%, after counting for inflation, since 1990.

What's Causing the Rise in Tuition

Economist Beth Akers argues that there are four main drivers for tuition increase:

• the “golden ticket” fallacy, or the idea that a degree from a high-priced university will pay off in the labor market
• lack of transparency in college pricing
• not enough local universities for the demand, especially for older students
• excessive government regulation, meaning industry disruptors have a harder time breaking into the market

There are things society and government can do to bring the costs down for college students in the long run.

Yet, predictions expect college costs to continue rising faster than inflation, at least in the short run.

• How Much Should You Save for Kid’s Education?

Students are starting to become savvier, however.

• Cost-comparison and ROI calculators are more common as students seek to avoid a large student loan balance after graduation.

• Students are also choosing alternate enrollment programs (see more below) to have some or all of their classes paid for.

Others are eschewing college altogether.

So how can you decide when college will pay off for you?

You can learn some things from the college experience that are hard to quantify-discipline, time management, life skills, friendships, etc.

Still, there are ways to guestimate if the cost of earning a college degree justifies the time and expense.

Net Price Versus Sticker Price

Some argue that even though the “sticker price” for colleges has risen exponentially, the “net price,” or the price students will actually pay to go to college, is much lower.

The sticker price is the advertised tuition costs and fees for a college. Whereas, the net price is the student's cost after accounting for government loans, grants, work-for-aid awards, and college discounts on tuition. 

College Data reports that for 2020-2021, the average sticker price for full-time undergraduate students at private colleges was $54,880, while the net cost was $26,820.

At a public university, the average sticker price was $33,220, versus the average net price of $19,490.

While the net prices in these scenarios represent a roughly 40-50% reduction in costs, they're highly dependent upon a family's income and the type of school the student is applying to.

Families earning less income do receive more in grant and aid money. Unfortunately, you won't find out a school's net price (the price after federal student aid or tuition discounts) until you apply and receive an acceptance.

Yet one tool might help: colleges are now required to have “net price calculators” on their websites.

You enter your financial information into the calculators, and they provide an estimate of the tuition expenses and fees you'll face.

These calculators are only estimates, however, and often show incorrect information.

Still, they give you some idea of the net price of your target school. 

• What are the Best Ways to Save for College?

ROI of a College Degree

One metric you can use to make sense of whether a college is worth it is the return on investment (ROI).

An ROI is determined by dividing the benefit (your salary) by the cost (what you paid to go to college).

So how can you measure your ROI for your years in college?

The US Department of Education has a website, the College Scorecard, to help you calculate your ROI based on college and field of study.

The scorecard will show you:

• the graduation rate of your selected school
• the average annual net price a student paid
• the college graduates' average earnings now

Note: the website only tracks the income of students who received federal aid

You can also do research into first-year earnings for your field of study to see if you'll be able to earn enough to justify what you're paying in tuition and fees. 

Money Magazine also has a tool that ranks colleges by value.

It shows a sticker price, net price, average student debt upon graduation, and early career earnings. So, you can get an idea of what a college's debt-to-earnings ratio would be. 

How to Choose a College

When choosing what school to go to, it's important to keep in mind ROI. But what if you're not sure what you'd like to study?

College counselor Amanda Dworsky recommends choosing a college or university that's within your family's budget and borrowing less if you're not confident in your ability to pay your student loans back timely.

She also recommends using the Occupational Outlook Handbook for the jobs you're most interested in to see what starting salaries are in those fields.

“I think you need to be mindful of what career outcomes are, but not so rigid that you don’t explore or follow your passions. Don’t borrow every last dollar in a field that’s not going to return that to you right away.

Nowadays there are online tools that show if this is what you study, this is what you’re expected to make, and this is what you would be expected to pay back in student loans. There are more of these comparison tools than ever before.”

Amanda Dworsky, College Counselor

Using comparison tools to get a sense of what you can reasonably expect to make may help you decide against a high-cost university for a low-paying field.

If you're unsure what you want to study, don't discount community colleges.

You can go to a public community college for substantially less than a typical four-year university, satisfy your general education requirements, then transfer to the school of your choice for a higher level of education.

It's often easier to be admitted, and you save up to half of the cost. Not only does tuition cost less, but living at home with your parents can save you a substantial amount in housing expenses.

Alternate Pathways

There are other ways to receive a postsecondary degree than a typical undergraduate path.

There are dual-enrollment programs, technical training, and community colleges for high schoolers.

There's on-the-job training and tuition assistance or degrees paid for by employers for older students. 

“I always recommend choices like the CNA (Certified Nursing Assistant) nursing pathway. You can enroll in the Career and Technical School Education programs and earn a CNA by the time you graduate, then immediately get a job.

You can go to college and work on your RN while you’re working as a CNA making good money, plus you’re continuing to get hands-on experience.”

Malinda Sadowski, High School counselor

Many dual enrollment programs allow high schoolers to earn college credit while still in high school.

Students take high school and community college classes concurrently and may even earn enough college credits for an Associate Degree.

Alternatively, they can transfer their credits to a four-year school, saving money on the general education classes they've already completed. 

• Read: Is Graduating from College in 3 Years a Good Idea?

Many companies are bypassing the liberal arts curriculum and are creating their own training programs.

In the Charlotte area, the Apprenticeship 2000 Program offers technical training for trades like injection molding and CNC machining starting in high school.

Students receive 8000 hours in training and an Associates Degree, all paid for by the program, plus a guaranteed job upon graduation. 

When Data is Misleading

So, is a college degree worth it?

Many proponents of higher education argue that when you look at wage data on jobs in so-called blue-collar industries that don't require a college degree, they're much lower than jobs for college grads.

Additionally, unemployment rates for high school graduates without a college degree are generally higher than degree holders.

However, due to the nature of many blue-collar professions, such as nail techs, tradespeople, and servers, unemployment and salaries may be underreported to the IRS, which can affect salary data in tools like the Occupational Outlook Handbook.

And a quick search finds many occupations that don't require a four-year college degree, like Elevator Installers and Repairers, earn strong salaries (for that profession, they made a median of $88,540 in 2020). 

Smart Choices

Choosing to go to college (or not) is a significant decision. So, before signing up to earn a four-year degree, do your homework and evaluate if a degree and college experience will better help you land a future job opportunity.

In the end, when you're deciding on your next education steps, you can no longer afford to just go to the best school that admits you.

Use the comparison and ROI tools at your disposal to pick a program of study and a school where you can learn a lot but also earn a lot after graduating.

The benefits of college can go beyond the choice of college majors and earnings potential from a future career.

Still, the cost of postsecondary education can't be ignored. Remember that most loans you take out have to be paid back.

So do your future self a favor and pick wisely today, to avoid significant student loan debt tomorrow.

Next:

• Are Income Share Agreements a Better Student Loan?
• Advanced Degree: Questions to consider before pursuing