Monday, June 27, 2011

Does paying out $250K over 4 yrs really bring "huge" returns?

David Leonhardt has a post on the NY  Times Economix blog, talking about the "huge" returns that come from earning a college degree. (You can link to his longer piece in the Sunday Review here.)

My children are small - we're focused on the elementary school education right now. But my beloved niece is in high school - she's just turned onto that road that will determine her future. And college most definitely is in that future of hers.

But what kind of college? Her parents (my sister and brother-in-law) just attended a presentation by Northwestern University, and learned that starting next fall, a year's worth of education at NU will set you back $60,000 a year. 60,000 bucks per annum.

Sixty thousand dollars a year.

Forgive the repetition, but that figure astonishes me.

Multiply that times four and you discover that you'll be paying out nearly a quarter of a million dollars for the highly desired NU education. (I have twins and shudder to think of our tuition bills a few years from now...)

And this is in a time when the median household income is about $50K.

So is it worth it?


Leonhardt shows some graphs that he feels prove it's definitely worth it.

According to one graph, it looks like demand exceeds the supply of college graduates in the work force. But then I wonder - where is this info coming from? We're seeing some of the highest unemployment in years and most of the recent college grads I know are having one hell of time getting a job that will help them pay down that college debt they've accrued. I'd like to know how this graph was created - what figures are they finding that shows college grads are in high demand right now?

And then another graph shows the income one can expect with the college degree, compared to those with the high school degree. And if you're good, the graph seems to indicate, the college grads will top out at about $78,000 a year. And you start out post-college earning less than $30,000 a year.


(A rather daunting prospect, to pay down a quarter million dollar loan with that kind of salary! Or even paying down a $100K loan, assuming the family's set aside money for college and it didn't all vanish in the recent crash.)

Those without a diploma start out at less than $20K and top out at about $30K.

If you look at it from that perspective, yes, college makes sense.

But does paying $60K for the knowledge that in your 40s and 50s you may earn about $80K (if you're not dumped by your employer for reaching that "golden" age of experience companies don't want to pay for any more) make for a "huge" return?

Not really. Tuition costs are rapidly reaching the point of diminishing - not "huge" - returns. College tuition is dangerously close to the point of being unaffordable for most families outside of the wealthiest families in America.

And if colleges don't come to grips with their astronomical increases in tuition, they will find themselves like the housing market - a sector with a whole lotta supply and very little demand for their services.

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