In the market of goods and services, college education is unique in the respect that people typically assume that no price is too high to pay for a “quality education.” According to FinAid.org, a college financial aid website, the average cumulative debt for a student who has just completed an undergraduate degree is $22,500. For students who choose to pursue an MBA program after undergrad, total average cumulative debt is $41,687.
The implicit (and sometimes explicit) assumption is that any amount of money spent on higher education is money well spent, since it will always improve your ability to get a high-paying job after graduation. As a recent New York Times article points out, many recent graduates are finding out the hard way that this assumption isn’t quite true:
“You often hear the quote that you can’t put a price on ignorance,” said Ezra Kazee, who has $29,000 in student debt and has been unable to find a job since graduating from Winona State University in Minnesota last May. “But with the way higher education is going, ignorance is looking more and more affordable every day.”
An oft-quoted pro-higher education statistic is that college graduates will make $1 million more than non-graduates over the course of their working life. As a recent article in Forbes points out, this statistic is very misleading:
Like many good cons, this one contains a kernel of truth. Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.
But anybody who has gotten a passing grade in statistics knows what’s wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn’t have increased his income.
All the while students have been lulled into thinking of the extra $1 million that will be theirs, they have been forced to disgorge an ever larger fraction of it in pursuit of the degree. While the premium that college grads earn over high schoolers has remained relatively constant over the past five years, the cost of acquiring a degree has risen at twice the rate of inflation, dramatically undermining any value a sheepskin adds.
Offsetting that million-dollar income discrepancy is the $46,700 four-year cost of tuition, fees, books, room and board at a public school and $99,900 at a private one–even after financial aid, scholarships and grants. Add all this to the equation and college grads don’t pull even with high school grads in lifetime income until age 33 on average, the College Board says. Even that doesn’t include the $125,000 in pay students forgo over four years.
Whenever you take out a large loan for any reason, you’re essentially mortgaging your future earnings. Starting your independent life tens of thousands of dollars in debt (before factoring in things like car payments, housing, wedding-related costs, etc) is a major burden that most college students simply don’t consider before enrollment.
Josh Kaufman is an independent business teacher, education activist, and author of the Personal MBA
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