1/24/2005

Is the Cost of Getting a Degree Killing You?

If you are like me, the cost of your college degree is probably mounting up. College loans and credit card debt are quickly making Americas young adults the most indebted generation ever. We have all heard our parents and grandparents say “get a good education and you will get a good job” Once you get that well paying career off the ground your problems are all over right? Wrong! Your problems are just starting. Payment of student loans starts, credit card interest haunts you daily, and now you need a car to get to work since you can’t walk to the school anymore. During the 1990s, college costs soared by an average of 38%. To make matters worse the costs of rent and housing prices have increased faster than inflation over the past decade. Does this mean we must enslave ourselves to massive amounts of debt, to get a beginning salary that barely pays all of the bills? The sad but all too real story for some students comes in the way of a trade off. Some students decide to quite while they are ahead by dropping out of school before they finish, getting an early start on the debt they have already amassed. Others choose not to attend a college or university altogether to avoid the pain and suffering. And then there is the die hard student who tries to work 60 hours a week, while going to school full time to avoid debt altogether, and in the process becomes a social recluse. Any way you look at the challenge of getting a good education, there are definite economic trade-offs that we must all consider. So what do you think? Should we amass debt to get a good education a hope that we can pay for it when we finally get a job? Or should we try another more effective alternative? Help me out here.

13 comments:

Lana said...

This is one of those instances when you have to take a step back and consider the bigger picture. I look at my father who recently turned 46 and see that he just made his last student loan payment this year, 20 years after graduating with a Masters Degree. He attended a fairly inexpensive university, not anything nearly as mounting Harvard or Stanford, and barely finished paying his bill. It seems remarkable that in takes so long to pay off, but one can also see that his choice to pursue a higher education has also paid off. His has done very well for himself and his family, and loves his career as a CPA.
So to answer the question....consider the basic economics of it all and if the future benefits of gaining an education outweigh the costs of doing so, by all means go for it...even if it means borrowing!

rico said...

Unfortunately, most people do need to go into debt to obtain a college education. With increasing competition in the job market, you definately need to obtain a degree to remain competitive. Luckily we are able to obtain loans at such low interest rate, and so easily. On the other hand, many people fall into the trap of having too many credit cards or purchase cars they can't really afford. In my opinion the problem isn't paying for school, it is that most students have a certain standard of living they want to upkeep and will go deep into debt to do so.

stockton said...

I would have to agree with both of the already stated comments in a couple of ways. First, you do need to look at the big picture and decide if that is something you really desire and want for your future. If so, you will have to pay the price, literally, to get there. Also, our generation today is more caught up in material things, having what our neighbor has, or we have to have everything our parents have right now, instead of working for them and acquiring them over time just like our parents had to.
Overall, we need to decide what we want, go for it, and not let the rest of the world help us into debt that isn't necessary.

Dr. Tufte said...

-1 for a spelling mistake in Drake's post (waived).
-1 for a spelling mistake on Rico's post (waived).
Also, Stockton's comment has two paragraphs - remember that this is the internet, and it is difficult to indent paragraphs, so most people put blank lines between them.

The way to encompass all of those tradeoffs with economics/finance is through present value. What is the present value of the debt and future service charges that you incur, versus the present value of the boost in future income you can expect to receive from a college education.

The answer turns out to be that going to college is an OK investment, graduating from college is an excellent investment. After that, master's and doctoral degrees also tend to be good investments, but not as good as a B.A./B.S.

One thought concerning Lana's post is that her father may have optimally chosen which debts to pay off first. Student loans often have relatively low rates, and they have very poor enforcement of delinquent loans (unlike, say, auto loans). This means that student loans are probably the best ones to defer when you have other more pressing loan obligations.

And ... I hate to admit it but Rico is right. Students are often volunteering to take on new debts (by purchasing stuff). I'm guilty of that myself still, and I'm 15 years out of graduate school.

C-Dizzle said...

The article “The Price of a College Education” (unfortunately this blog no longer exists at this link) highlights the fact that the cost of public college tuition has dropped 32% in the last five years (considering inflation and all other factors I’m sure). That’s not too bad considering all the headlines lately about the rising costs of education.

The article also states that there’s also been a “$22 billion annual increase in grants and tax breaks since 1998.” This excess of money more than offsets in general, the rising costs of schooling these days. As for myself I’m grateful for the grant system.

Here’s how the schools are able to help kids with their tuition woes. The university or institution raises its “official” tuition price. Because of the higher listed price, the state qualifies more people to receive federal Pell grants and other scholarships. The university receives the money from the grants and scholarships on behalf of the students, and they pay the associated expenses of giving the students and education. Because the state grants usually cover a good portion of the tuition and fees, it leaves little for the students and student families to pay out of pocket. In essence, the students are paying less in the end because of the tuition increase.

Those who do not qualify for financial aid will unfortunately have to pay higher tuition. On average, the costs of college have supposedly gone down. Perhaps colleges could give students a break by selling text books at cost rather than at a 1000% markup!

Keston said...

My personal opinion about getting a college education is that it is well worth it. Yes you can incur a lot of debt, but I think in the end it all pays off. Neither of my parents went to college out of high school, however, my mom did go and get her associates degree later on in life. My mom has a good job, any ways I think so, she works for the government, and makes about $48,000 a year. However, she has worked for this company for 17 years, and therefore has had to work her way to the top. Where if she would have gotten a BS/BA she could be making a lot more than what she makes now. As a college graduate with a business degree, it is likely that you will start out making between $30,000 and $35,000 a year (depends on the occupation) and therefore if you work at a company for 17 years you will be making a lot more than if you had no college education. Yes, it does cost a lot of money to attend college but I think it is well worth it, and I hope that some day it pays me off.

scott said...

I am one of those social recluses trying (note trying)to get through college without debt, but I have never seriously considered the idea of not getting an education. I would compare this idea with a business. A business can grow by using only equity, but how many big businesses are there with zero long-term liabilities? Most large corporations are up to their neck in debt, yet they can still turn a profit. This has to do with capital investing. Businesses take on huge amounts of debt to build capital which is used to generates more revenue each period than its loan payment for the same period. There are millions of small businesses who because of 1)fear 2)lazyness 3)ignorance or 4)lack of desire never make the capital investments necessary to turn a large profit. The same is true with a college education. Some students try to get the best value(go SUU); others want to get the best. Then there are some who don't want to take the risk. Well, I guess that we're all risk takers, let's hope it pays off.

Harry said...

The cost of education has been a big concern for alot of people, especially when it keeps getting raised. But when I look at the big picture of getting an education or not getting one. I have to go with getting an education. It is a good investment that in the long run will be a benefit to you. The main reason that I believe in getting an education is because the job market is becoming a very competitive place. So if you want the job you need to have the education behind you. So you can compete with the rest of the world.

Rex said...

I would tend to agree for the most part. I am a first generation student. I look at where my parents are in life and hope and pray that when I am their age I will not be in the same position.

Yes the cost of tuition is high and as students we will amass large amounts of debt by the time we graduate. But look at the up side, over our lifetime our income will far surpass that of our parents, in most cases. The price is high and the way may be hard, but there is no way I wouldn't give up this opportunity to be here.

Ann said...

If taking out loans is the only way to pay for a college education, I think taking out loans is a good idea. The benefit of a college degree is much greater than the cost of getting a college degree. It may take 10-20 years to pay off student loans, but it is important to look at where you will be in 10-20 years if you don't take those student loans. Even if you have a job that pays a decent salary without a degree, you are probably not going to improve your salary substantially without a degree. I don't know anybody who wants to be stuck in a mediocre job with a mediocre salary for the rest of their lives.

Bjorn said...

Amen to the 1000% Markup on Textbooks comment. I managed to shave $100 off the cost of my books by acquiring them from five different places (technically, eight: one of the five is Amazon.com listing books from individual sellers) rather than buying them at the University bookstore. I was so happy when I saw that one textbook had a "1/2-Price edition" printed in 1-color (that's black and white) rather than 4-color.

One aspect of this situation to which a few people have referred is the Standard Of Living problem. Not only does this generation want to live like its parent generation (and do so right now), this generation wants its independence. I am attending a State university about 7 miles away from my house and I fail to see any real benefit of doubling the cost of my tuition in order to avoid a commute (this MIGHT be fiscally viable were I to sell my car, but I recognize that I can't live without her-err... it.). However, almost everyone I see on campus from my graduating class is living in dorms.

I understand that a large number of people are moving out of their homes at 18 and returning later because they are unable to uphold the standard of living to which they have become accustomed.

All of this simply establishes that many, many people want to have their cake and eat it too. I chose to go to a school where I would pay $2,500 / semester (after deduction of scholarships) rather than $8,000 / semester (after scholarships); and I am working (though not nearly enough to become a recluse).

While costs are increasing, I believe it is more a matter of people being unable to sacrifice than an impossible scenario.

-- Bjorn

Chuck said...

Very well written, insightful, and a pleasure to read! I know in my case that getting an education is something I want to do even if it requires dept in obtaining it. I'm just glad that everybody and every circumstance is different. If everyone were to go to college and earn a degree we would have no one to drive trucks, work the late window at Wendys for which I am honestly grateful for. Education is great, diversification and freedom to choose is even greater.

sierra said...

This is a very interesting topic. Most people fall into debt with the cost of education, which in my eye is o.k.
Getting a college education in important, and although it seems impossible to pay off all the debt that you will owe, I know down the road you will be glad you went into debt for the education you received that will help you pay your debts off, and be able to support yourself, and your family. Hopefully while going to school, you can work part time to provide for yourself during the semesters, and maybe help pay some of the loans off now. Too me it is not such a bad thing to take a semester off to earn some money.