Is College Still a Good Investment?

October 8, 2014

There is so much noise in the conversation about the value of higher education that it has become increasingly difficult to know if it is worth the time and money to go to college to earn a bachelor's and perhaps a master's degree. Popular media often tells us that college is no longer a good investment.

I've spent my entire thirty-year professional career as a financial aid administrator at Stonehill College in Massachusetts. I've seen the media and the economy move from warm to cold. I've watched the value conversation shift from societal benefit to individual gain, and then seen that value pegged to individual return on investment. But through it all, I've experienced that as a society; Americans are by and large a hopeful people, who still doggedly believe in the ability of higher education, through study and hard work, to propel them to a better life.

Are they wrong? Has college lost its luster? Does the cost of higher education now exceed its long-term value? Some headlines scream "yes," but I believe that the reality beneath those headlines says something very different - if we are willing to go beyond the sound bites.

The cost of college has definitely risen over the past 30 years. According to the College Board's most recent Trends in Higher Education, over the last three decades tuition at four-year private non-profit and public institutions has on average grown at a rate higher than inflation.

The good news is that during the last ten years, grant aid per full time equivalent student has also increased - by 55% in inflation-adjusted dollars. What is important to focus on here is net cost after scholarships and grants are subtracted, not the published tuition price. Another fact to notice beneath those headlines is that all schools do not charge what the elite schools charge and in fact charge significantly less. The average tuition and fees charged at public four-year institutions in 2013-2014 was $8,893 for in-state students and the average at private non-profit four year institutions was $30,094. The headlines quoting nearly $50,000 for tuition charges are focusing on the outliers. College prices come in all shapes and sizes, from low cost community colleges (some of which charge no tuition), to $49,793 tuition for the highest reported private college in academic year 2013-2014, with significant variation in between. (Public colleges are typically less expensive than private non-profit colleges in part because they receive state funding to help cover their operating costs.)

We know that more students are borrowing to pay these higher costs and that they are borrowing more heavily. Today, total education debt exceeds $1 trillion. In 2005 average debt on graduation was $17,233 but by 2012 it increased 58% to $27,253. Why? Is it because of the increase in costs? Surely that has played a part. But once again we must look beneath the headlines and beyond the sound bites. In 2005, a dependent student who finished his bachelor's degree in four years could borrow no more than $17,125 in federal student loans. But in 2008, the federal government increased the maximum borrowing for such students to $27,000. In my experience, many parents of 18-24 year old students shifted some of their burden to their children, taking advantage of the attractive loan terms in the federal student loan program. And so, even without an increase to tuition costs, I believe we would have experienced an increase in average student borrowing. In addition, when it increased the loan limits for undergraduates, the government created a new loan program for students seeking graduate and professional degrees, allowing this population to borrow the full cost of attendance, fueling that growth to $1 trillion.

To carry the look under the headlines further, we need to ask whether it is reasonable for students to invest even $27,000 in their uncertain futures. Commercial lenders suggest borrowing no more than projected first year earnings after graduation, so this amount seems in line with that standard. Curiously this amount is similar to the price one might pay for a new car.

We know that approximately 14% of student borrowers have defaulted. But we also know from U.S. Department of Education data that the defaults are significantly and disproportionately among those who borrowed relatively little and who did not complete their degrees. Those who borrow the most - often over $100,000 for graduate/professional degrees - have the lowest default rates.

Many headlines tell us that a college degree doesn't pay. "So it might come as a surprise" says US News and World Report, "that a new study shows the value of a college degree is greater than it has been in nearly half a century, at least when compared to the prospect of not getting a degree. The Pew Research Center has found that the earnings gap between millennials with bachelor's degrees and those with just a high school diploma is wider than it was for prior generations."

But to me, as someone who has devoted her career to providing access to higher education, I believe that the ultimate value of attaining a degree lies in a place far beyond the practicalities of personal financial risk and reward. It is not often acknowledged but is nonetheless true, that our society benefits from a more educated citizenry. Indeed, Thomas Jefferson believed that an educated citizenry was essential to a strong and free democracy. He was so committed to this belief that Jefferson founded the University of Virginia and his personal book collection renewed the Library of Congress after the British burned Washington D.C.

Time and again, data confirms that civic involvement and voting rates are higher among those with college degrees. Regional economies are stronger and tax revenues are higher where educational attainment is higher. Overall unemployment is lower, retirement plan contributions are higher, poverty rates are lower, health insurance coverage is stronger, and public assistance participation rates are lower as educational attainment rises. From a societal perspective, what's not to like?

And finally, when we survey those with and without college degrees, we find significant personal benefits accrue to those who have college degrees. In its Trends in Higher Education Series, Education Pays, The College Board documents the rewards to individuals: higher job satisfaction, less chance of unemployment, potential for higher earnings, greater social mobility, and better health - leading to a higher quality of life in general.

I believe we have erred in defining the value of achieving a college degree simply in terms of indebtedness and financial gain to the individual. When we do this, we reduce higher education to a commodity that is measured by nothing more than adjusted gross income. In fact, higher rates of educational attainment serve our society as well as the individual in more ways than financial. Let's not sell higher education short based on headlines and sound bites.