As the price of tuition increases and students take out more debt to cover that tuition, many prospective students are starting to ask the question: Is college still worth it? Student borrowers owe around $1.6 trillion in student loans, with the average loan size in the Class of 2018 being $29,800, according to Student Loan Hero. Over two million borrowers have defaulted on their loans over the last six years, and a recent study by the JPMorgan Chase Institute found that only 54 percent of borrowers make consistent payments toward their student loans. At the same time, a report by the New York Federal Reserve found that four in ten recent college graduates are in jobs that do not require a degree. This is leaving many students questioning whether or not college — what was once a fast-ticket to success — is still worth it.
Why Are We Questioning the Value of College?
In 1970, first-year starting salaries for college graduates were promising and would cover the full cost of a student’s tuition. This made it more difficult to question the value of college — you earned more in your first year than you paid out to acquire your degree. However, this is no longer the case. The value of higher education has been brought into question lately in part due to the number of people attending college and the price those people are paying to attend — approximately 19.9 million students will attend college and university in the fall of 2019. According to the 2018 Trends in College Pricing report, the average tuition at a private nonprofit four-year institution in 2018-19 was $35,830, more than double the $17,010 sticker price in the 1988-89 academic year; the average price for public four-year institutions has increased around three-fold in the same timeframe. This has meant that students have had to take out more debt in order to cover their tuition.
Around 69 percent of students from the Class of 2018 took out a student loan to finance their education, in large part due to the lower purchasing power of federal student aid. Pell Grants, a popular form of student aid for low-income students that does not need to be paid back, have failed to keep up with the rising cost of college and have less of an impact when students are looking to finance their education. Due to the increases in tuition, students have relied more on debt from both the federal government and private lenders so they can raise the money that they need to finance their education. More borrowers are carrying upward of $50,000 in student loan debt, and studies have shown that this has a direct impact on the career decisions of graduates.
College Graduates Earn More
Despite increases in tuition, college graduates still earn more than those who have only received a high school diploma. The so-called college premium — the estimated amount that a college degree adds to your earnings prospects — still exists, so college still provides a pathway for many to increase their salaries. A study by the Bureau of Labor Statistics found that the median weekly earnings of those with a high school diploma were $712, whereas those with a bachelor’s degree earned $1,173 per week. The New York Federal Reserve also found that the average return on college is around 14 percent, which demonstrates that college is still a good investment for many people. The college premium is nearly at an all-time high, adjusted for inflation.
But the effect of this is limited. A recent study by the New York Federal Reserve found that college has not paid off for the bottom 25 percent of graduates — there was almost no difference between this group and high school graduates. This means that although the college premium does exist and makes college a worthy investment for many, it does not add significant value to everyone’s earnings prospects.
The college premium indicates that getting a bachelor’s degree is still a valuable investment. However, the average salaries of young graduates has remained almost flat over the last decade, according to the Economic Policy Institute. The main reason for this change is that more college graduates are now employed in a job that does not require a college degree. After the dot-com bubble burst, there was less demand for college graduates who typically wielded more academic skills that technology companies were looking for. Therefore, college graduates started looking for jobs that were previously offered to those with a high school diploma, which has meant that they have been earning less on average in recent years. College graduates had earned a degree so they had an advantage when getting a job, but their salaries did not increase. If an employer could hire someone with a college degree, they had no need to offer someone with only a high school diploma the job.
Credential Inflation and Wealth Boosts
After the recession, more people started to attend college because, at the time, many people believed it was an effective way for them to stand out and command a high salary — something many people lost in the recession. This meant that because more students were attending college, degrees became more common and so had less earning power. This effect, referred to as credential inflation, has meant that college degrees have become more of a requirement in many jobs. Compounded with the migration of college graduates to high-school-graduate-level jobs after the tech bubble burst, this meant that more positions — and those that were typically less skilled — started to demand that people with a college degree. Thus, even though salaries may be flat, college is still a requirement to enter into many jobs and so it is still a valuable investment for many people. The impact of this may not be as important in the future though as companies like Apple have announced that they will no longer require college degrees for most of their positions.
In addition, college graduates still accumulate more wealth than those of their high school graduate counterparts. A report published in July by the St. Louis Federal Reserve found that the median family headed by someone without a college degree earned only 44 percent of what the median college graduate family earned. The median non-graduate family also had only 18 percent as much wealth as the median college graduate family. The effect of this premium depends on the background of a college graduate, though. Younger college graduates have realized lower wealth advantages than previous generations.
Another study by the St. Louis Federal Reserve published in 2017 found that college degrees provides little to no help to black graduates in terms of accumulating wealth. One potential cause for this is that black students are more likely to take out student loans — their parents have less wealth, on average — which means that they have more money to pay back before they can start to accumulate wealth. This wealth premium may increase over time as the earnings of students appreciate and as their student debt is paid off, although, overall, the college wealth premium has been in decline recently.
It Depends on the School, Major, and Graduation
There are a number of other factors aside from price which influence whether or not college is worth it for a student. Firstly, college is only valuable for those who finish school. Over 40 percent of students who enroll full-time at four-year institutions will not graduate within six years. Part-time students generally struggle even more — 1 in 5 part-time students finished a degree after six years. If a student does not graduate, then they still have to pay off the loans that they have taken out, but do not have the college premium to help assist them in doing so.
Therefore, they often have to take lower-paying jobs that do not require a college degree and also give a higher proportion of their salary back to their student lender. A recent report by Third Way demonstrates the magnitude of dropping out on repayment rates: after seven years, only half of those who had started and not finished college had paid back any money toward their student loans. This means that, due to interest, many of these borrowers owe more seven years after leaving college than they did on the day that they left.
Whether or not college is worth it also depends on the major that a student chooses. Indeed, students pay the same tuition irrespective of whether they want to major in a liberal arts subject or mathematics. However, the relative value of the degree depends on what subject a student has majored in. STEM degrees and those in business and finance generally pay off more than liberal arts and humanities degrees. This is because of higher earnings prospects in STEM subjects which graduates can quickly realize. Those who major in these subjects are also more likely to pay off their student loans for this reason — they command higher salaries and so it is easier to repay their loans.
Another influencing factor is the institution that a student attends. Employers are more likely to favor a degree from an elite university — an Ivy League, for example — when evaluating multiple employees over a degree from a local university. The average salary of a graduate with a bachelor’s degree from Stanford is $143,100 mid-career, whereas the average mid-career salary of a student with a bachelor’s degree at Northeastern University is $105,900, according to the 2018-19 College Salary Report by PayScale. Schools vary significantly in their outcomes both in terms of salary, and graduation rates. While this data is often hard to access — colleges boast more about their dorm rooms, amenities on campus, student societies, among other things — it does show that not all colleges are indeed the same.
The Rise of Vocational Education
There are now a growing number of options available to those who are not interested in getting a degree but still want to pursue further education. There are a growing number of vocational bootcamps in industries like computer science that offer three-month to two-year courses in various computer science subjects to help people acquire the skills they need to get hired, and assist people in finding a job. Lambda School, Kenzie Academy, and Make School are three of hundreds of bootcamps in the computer science industry which are specifically designed to help people learn what they need to thrive in a career in coding. These institutions have yielded consistently high outcomes — for example, 85.9 percent graduates of Lambda School’s H1’18 cohort were employed within 180 days of graduating, with a median annual base salary of $60,000.
A growing number of employers are also starting to invest heavily in internal training programs to help people acquire new skills. Amazon has recently announced they will retrain 100,000 members of their workforce through the Amazon Technical Academy; other employers are starting to offer similar programs, or create more apprenticeship programs designed to help new workers break into an industry.
The Future of College
While college may not pay off for everyone and the wage gains have remained flat in recent years, college degrees, on average, are still a good investment for students. Although, there are various factors which influence the potential impact of a college degree on your career. The degree you choose and the institution which you attend will have a major impact on the amount that you earn after graduation — the average statistics for graduate success often make it difficult to consider the variability in outcomes at different institutions. College is not a good investment if you drop-out — you will still have student loans to repay and will not realize the college premium effect. For many people, vocational bootcamps and corporate training programs are also a better fit for some people. In sum, college is a good investment for most people, but for others, it may not be the best option. One thing is certain, though, college is no longer a ticket to higher earnings for everyone — you need to complete college, attend the right institution, and pick the right major.