Is a Diploma Worth the Debt?
Is college a good deal despite rising debt? Two reports released this week help answer the question.
On Tuesday, the College Board announced that the median debt for four-year college graduates has reached $19,300. Yesterday, the Census Bureau announced that a degree is worth $22,900 a year (after comparing the average earnings of college and high school graduates).
So, no problem, right? It looks likes most graduates can pay off their debts quickly and easily.
Well, yes and no.
There is no question that -- even with higher debts -- college remains a terrific investment for most students. Over a career, that $22,900 a year could add up to $1 million.
However, there are two big caveats. First, not every borrower graduates. In fact, only 65 percent of students entering a four-year colleges earn a degree within five years, and graduation rates are even worse at two-year colleges.
For college dropouts (other than Kanye West), debt may be a real problem. The Census data shows that students with "some college, no degree" earn only $3,300 more than those with no college at all.
Second, as Paul Krugman ($) and Brad DeLong have pointed out, having a college degree is no guarantee of doing well. The Census data also shows that the median income of college graduates is $10,800 lower than the average income, indicating that most graduates earn well less than the average.
So while students loans often pay off, they can be risky. The loans cannot be discharged in bankruptcy, and struggling students can find themselves trapped with no way out. Student debt is a problem despite the economic benefits of a college degree.
Comments (6)
Does this study take into consideration the interest on that student loan debt? That might change the equation some.
Satellite Sky Blog
Find the Truth. Do Justice.
October 27, 2006 5:44 PM | Reply | Permalink
There is no question that -- even with higher debts -- college remains a terrific investment for most students.
Association does not prove causation; and unless I've missed a study or two, I've never seen one that sought to demonstrate that the higher incomes came as a result of attending college. It might be that those who graduate from a four-year college are, on average, smarter than those who don't. The information economy may be rewarding gray matter rather than the acquisition of an ovine sacrifice.
October 28, 2006 7:18 PM | Reply | Permalink
I think that's an important point... At least traditionally, to get into college, you needed certain ACT/SAT scores, letters of recommendations and decent high school grades-- all signs that you were mentally proficient.
In general, whatever success I've had seems directly tied to the reading skills I've developed independently along with my mom's help and my own curiousity.
That's why I hype things like MIT's "Open Courseware."
Studies have shown that you remember only 10% of what you hear but 90% of what you teach yourself.
There are other interesting reasons for going to college: "social networking," primarily. Bush, for example, was part of "Skull And Bones."
Another thing about universities is their labs.
As I get older, I've become less excited about "liberal curriculums" because, at 21 credits a semester, everything was a rush and, as an engineer, we say: "simplier is better." My opinions about minorities, religion and women weren't impacted that much by classes about them-- just like the average person will still visit McDonalds after seeing "Supersize Me!"
Russians don't man their rockets but Americans do in an attempt to create heros and human attachment.
Changing course from the current "teacher led" approach will be difficult but perhaps worthwhile because John Dewey's philosophy sets me on fire while Dewey inspired curriculums don't!
Loans have let University's raise their rates because they precieve that their students can pay more, so tutition rates aren't necessarily an indication of quality or "real cost."
That's why I wouldn't mind nationwide testing, like NCLB, at the college level... That way, we might know what we're paying for.
October 29, 2006 2:04 PM | Reply | Permalink
Does Ellen believe that the acquisition of knowledge in college is of no economic benefit to organizations that hire college graduates? That Wall Street banks hire Wharton grads because they're smart, and not at all because they happen to know something about finance, which they learned at Wharton.
The same can be said of architects (try getting a job without a degree), some lawyers, doctors, etc.
There are plenty of studies that show that learning a skill, whether it's finance or plumbing, is related to earnings.
October 31, 2006 11:54 AM | Reply | Permalink
Yes, but is it worth the cost when you count in the compounded interest on the student loans? Are we starting to create a bubble in the cost of a college education due to the debt that is being incurred by the students, much like the bubble in the housing market due to loose lending standards?
Satellite Sky Blog
Find the Truth. Do Justice.
November 1, 2006 5:39 AM | Reply | Permalink
Wall Street banks hire Wharton grads . . . because they happen to know something about finance . . . .
Well; that explains why those 454 graduates were hired. All we have to do now is figure out why the other 1,449,546 graduates who didn't attend Wharton were hired.
November 1, 2006 7:30 PM | Reply | Permalink