A College Degree: Is It Really Worth the Money?
It’s common wisdom: a college degree might be expensive, but it’s worth the money. This is backed up by College Board statistics cited whenever the media discusses the issue: the average college graduate makes approximately $20,000 more per year than the average high school graduate. Over time, this adds up to about $1 million more in the bank for college grads than for high school grads.
Take a look at any graph charting earnings against degrees, and you’ll find a reassuring correlation: the higher your degree, the higher your earnings. So you may suffer for a few years while you pay back your student loans, but in the end you’ll be better off.
But is it actually true?
Consider how much it costs to go to college. Economists estimate an annual rise of about 6% on average, and a rise over five years of about 35%. That’s higher than an annual inflation rate of about 3-4%. Workers’ incomes aren’t rising to keep up with inflation, either—they’ve grown by only about 2.3%.
But never fear—most college students don’t pay a full ride. You can always get government-subsidized loans and grants that will shave a significant amount off your college tuition. And there are tax credits that can help with college costs, too. Right?
Well…not exactly. It’s true that about two thirds of students receive some sort of financial aid for college; you rarely pay the sticker price. But the College Board reports that financial aid isn’t keeping up with rises in tuition. Of financial aid given out, about 44% was from grants that do not need to be repaid. 51% of financial aid was given in the form of government loans with low interest rates. The study showed that this aid is not keeping pace with inflation, let alone rising tuition costs. Tax credits favor upper-income families over those who need it most; only 22% of tax deductions go to families making under $50,000 per year.
See Also: Going to College Online
Faced with rapidly rising tuition costs, wages that aren’t keeping pace with inflation, and financial aid that isn’t filling the gap, many students and families must turn to private loans to make up the difference. And that’s where college financing really gets expensive.
Government loans have interest rates that are capped, by law, at about 6.8%. But private lenders have no such restrictions. Their interest rates can be as much as 20%, and they’re variable—so lenders can raise their rates at will.
While the College Board includes exhaustive statistics on wages earned over the lifetimes of high school and college graduates, it does not address whether quality of life actually improves with a college degree. Run the figures through financial-spending software, and you’ll find that in addition to high student loan rates, many other factors eat into those higher earnings reported by the College Board. When you’re at the top of the pay scale, these factors don’t make much of a difference. But if you’re near the average figure, they can narrow the gap between college and high school graduates. These factors include:
You pay a higher percentage of your earnings in taxes as your income goes up. If your gross earnings are around $50,000 a year or so, you may wind up taking home as little as $2,000 a month after taxes. A high school graduate may have a lower-earning job, but he’ll be in a lower tax bracket as well—and he’ll have to pay a lower percentage of his earnings to taxes. Despite lower gross earnings, his take-home pay can look quite similar to that of a college grad.
The more money you earn, the fewer government benefits you’re eligible for. You may earn out of Social Security and Medicare. A high-earning individual won’t need these benefits, but if you’re a middle-income college grad, your earnings will take a hit when you need these benefits and can’t receive them.
Fewer Years on the Job
High school graduates start working earlier. When you spend four years of your life making no money and financing your education from college loans, it has an impact on your lifetime earnings.
Despite these factors, many college grads still do better than high school graduates. A business major, economics major, or scientist will probably make a healthy income throughout her lifetime—and higher taxes, fewer benefits, and four years of school are worth the cost.
But what if you get an online liberal arts degree? Unless you depart from your subject area and go into business, finance, real estate, or another unrelated subject, you could stand to make less over your lifetime than the average college graduate’s wage as reported by the College Board—and the costs of college will weigh much more heavily on your shoulders. Still, each college degree from the same college costs the same amount, regardless of your future earning potential.
College costs can be astronomical. But you can cut some costs by studying online. According to the College Board, tuition and fees alone add up to 67% of the total budget for traditional private college students, and only 35% of the budget for students at public schools. The rest includes food, extracurriculars, and other living expenses. Enroll in an online program, and you could save money in these areas. In addition, it’s much easier to work full-time while you attend school—so you won’t have to sacrifice four years of wages in order to get your degree.
College is still worth it. But the picture may not be as rosy as it appears. The impact of private loans, rising tuition costs, and shrinking financial aid is having an effect on the value of a college degree. To make college pay off, many students are best served by paying attention to price, insisting on choice when it comes to loans, and choosing schools based on practicality instead of “the college experience.”
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