Educational attainment is one of the best indicators of one's success in professional development and overall social mobility. Having a solid education, and more specifically, going to college (which for purposes of this discussion, we will define as a four-year college that results in [at least one] Bachelor's degree), is key to one's future. However, this conventional wisdom has been tested in recent years in light of the crushing student debt. Student loan debt has not only exceeded $1T, an amount that has exceeded credit card debt, but there is something wrong with the way we finance, price, and value a college education. Yet somehow, conventional wisdom continues to prevail. Do the facts tell us it is still worthwhile to go to college, or should we as a society start looking to alternatives to conventional wisdom?
First of all, there is a significant difference between going to college and completing a four-year program resulting in a Bachelor's degree. America currently experiences a 41 percent college dropout rate. There are many individuals who pay for tuition, either struggle with the college experience financially or academically, and they end up dropping out with nothing to show for it but student loan debt and having to find a way to pay the debt off as soon as possible. Those who dropout of college are four times more likely to default on their debt because of their inability to pay. Should it be surprising that those who do not finish their college education have the hardest time paying off student loan debt? As a recent Pew Research study shows, not acquiring that four-year education costs a lot (p. 16).
Access to a college education does not guarantee success, but does completing college do the trick? According to the Federal Reserve Bank of San Francisco's recent findings, as well as other academic literature (e.g., Oreopoulos and Petronijevic, 2013), the answer is "yes." Even with soaring tuitions, these findings concluded that the costs of higher education can be recouped by age forty. Conversely, the Federal Reserve Bank of New York (FRBNY) recently found that the amount of time to recoup from the costs of college has dropped from twenty to ten years, which goes to show that financing student loan debt is no more difficult than it was a generation ago (Akers and Chingos, 2014). Even after recouping those losses, the average college-educated worker still earns $800,000 more than the average high school graduate by retirement age. Investing in a four-year college education provides a higher rate of return than investing in stocks or AAA corporate bonds. As a matter of fact, the rate of return on a college education is much higher than it was in the 1970s. That being said, all experiences of college-educated individuals are not equal (Carnevale and Cheah, 2013) because there is no such thing as "the average college student."
For one, if it takes longer than four years to complete college, the rate of return is lower. When the Federal Reserve Bank of New York looked at the average wage for the bottom quarter of wage earners with a Bachelor's degree in comparison to those with just a high school degree, there wasn't a huge difference in wages. There is also a major difference in salary based on the degree one pursues. For instance, the average engineer is going to make a lot more money than the average individual who majors in theater or studio arts. While college graduates have an easier time finding employment, the FRBNY also found that 46 percent of recent college graduates are underemployed (i.e., they're not using their degree), as are 35 percent of college graduates as a whole, which is to say that landing a good job is not easy. This means that out of 100 people that attend college, 41 don't graduate and at least a quarter who do graduate, or 15 people, make a salary comparable to one who has a high school education. For those who decide to attend a four-year college, the odds of succeeding are not quite half. None of this, of course, factors in the networking value of college, the pursuit of learning, the social benefits of being college-educated (e.g., less likely to commit crime, longer lifespan, higher quality of life), the missed opportunity of earning salary while in college, or potential stress caused by college.
There are very few investments that are full-proof. The current higher education system is far from perfect, and here are but a few ideas to improve the situation: Make sure potential college students have better consumer information, stop the government from keeping the interest rates on student aid artificially low, income share agreements (also see here), reforming the antiquated accreditation system, or promoting alternatives to the traditional four-year college, e.g., online learning, for those who could benefit from an Associate's degree or vocational certification and still have a comparable wage premium. There are many who try to acquire a college education and do not succeed. Much like any other investment, one has to be able to assess the possible risks and potential rewards before pursuing it, which is important to consider when most of the fastest-growing jobs require a postsecondary education. It is also true that a four-year college is not for everyone, and some would be better with an alternative postsecondary certification or degree. Even so, the marketplace still values the four-year degree. If you do decide to go on that pursuit and if you successfully acquire a four-year education, it is one of the best investments that you can make.
12-3-2014 Addendum: The American Enterprise Institute just published a report illustrating why it's difficult to have a huge payoff from a college education, particularly for students from low-income families, and what can be done to help young adults have a better future.