Monday, June 27, 2011

Is College Worth the Money, Redux

I've already discussed at length my thoughts on whether or not college is worth the money.  I've even given some tips for choosing a college without going deeply into debt.  Today on Yahoo! Finance, there were a couple of articles on this subject with opposite views.  The first was this one containing the testimonies of four people who say that college was not worth the debt.  Four people describe, in their own words, why they feel that college was not worth the price.  Their stories are quite instructive, to say the least.

One of the testimonials stood out for me because the person obtained a degree in engineering.  We have all heard stories of people who accumulated massive amounts of college debt only to end up in minimum wage jobs.  However, a degree in engineering generally is viewed to be one of the bright spots when it comes to job prospects.  The demand for quality engineers is always high, and it is a career which not everybody can aspire due to the rigorous course of study.  However, the individual in the story ended up with $185,000 in debt after earning an engineer degree and, as he says, he is earning $15,000 less than he expected.  He hoped that he would be earning $70,000 - $80,000, so I assume that he is earning only $55,000 a year.  Of course, if he had done some research, he would have known that the average starting salary for an industrial engineer is around $58,000.  That means that is salary is right around the average.  Also, if he would have followed my formula for determining how much college debt you can afford, he would have known that he probably could have only afforded to take out a loan of around $25,000.  It goes to show that even if you are doing the right thing and obtaining a degree in a lucrative field such as engineering, you still need to do it in a financially prudent way.

The second article on Yahoo! Finance, which was a good counterpoint to the testimonials, was this one about how investing in a college degree, generally speaking, has a better return on investment than most other traditional investments.  The article cites well known research which shows that college graduates generally make more than those without a degree, and they are less likely to be unemployed.  On first blush, it seems like these two articles are at odds.  How can you say that, on the one hand, college is worth the investment, but on the other hand, hear stories about how people's lives were ruined by college debt?

Of course, neither article is wrong.  On aggregate, a college degree is a good investment.  However, as with all investments, many people still find a way to screw it up.  Think about stock investing.  Generally speaking, if you invest in stocks, you are going to make a return that exceeds inflation.  That doesn't mean, though, that these returns are automatic.  People routinely lose all of their money even in the most bullish of bull markets.  They put all of their money in loser stocks because they heard some talking head pump it up on TV.  They panic sell when the market hits bottom and re-buy only when the market has reached its high.  The same thing with college "investing".  People take on more debt than they can afford relative to their future career.  People make poor choices about what they study.  People think they need a degree when their future career doesn't require one.  In short, just because it is a good deal in aggregate doesn't mean that getting a degree is an automatic meal ticket.  You still need to use your head; otherwise, you'll end up in a future Yahoo! Finance story!

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