Is a College Degree Worth the Debt
Let’s face facts, a college education is costly but the payoffs are considerable. A college education not only improves a graduate’s earning potential but her ability to be employed overall. According to the Bureau of Labor Statistics, in 2013, the median earnings of high school diploma holders were $651 per week with an average unemployment rate of 7.5 percent. But compare these statistics to those for a college education; median earnings with a bachelor’s degree were $1,108 and the unemployment rate dropped to 4 percent. With a master’s degree or professional degree, unemployment continues to drop while earnings rise.
The Los Angeles Times, reporting on this topic notes that bachelor’s degree holders earn 84 percent more over their lifetime than those with a high school diploma. Further, the earnings gap between high school graduates and college graduates is widening over time as the differential was a 75 percent in 1999. It’s clear that a college education pays but it’s important to be smart about paying for it.
Important Considerations for Financing a College Degree Responsibly
Once you’ve decided to pursue your education, the question becomes not only how to finance college but how repay the debt after graduation. When considering how to finance college, you must take into account tuition and living expenses and all available financing options. The following are common sources of funding for college:
- Federal Direct Loan (subsidized)
- Federal Direct Loan (unsubsidized)
- Federal Perkins Loan
- Federal grants, such as the Pell Grant
- Private loans
- State grants
- School scholarships
- National and local private scholarships from foundations, benevolent societies, rotary clubs and other charitable organizations
- Work-study (a federally funded work at school for wages program that helps students with living costs)
- Higher Education Opportunity Program (HEOP) which is available to qualifying students based on economic status
In general, federal loans must be repaid while scholarships and grants do not need to be repaid. There has been coverage in the media of “loan forgiveness” on federal loans. Although the federal government has devised programs that will partially excuse debt for qualifying borrowers, there is no guarantee in the future, after graduation, that the program will be as it is today or that a borrower will even meet the conditions for eligibility after graduation. For this reason, it is advisable to plan for repayment of all federal student loans, and, after graduation, research the criteria for any and all federal loan forgiveness programs. It is important to note that loan forgiveness programs specifically refer to federal loans. At present, private loans do not offer loan forgiveness nor is it likely that they will in the future.
The Reality of Repaying Student Loan Debt
The media has reported extensively on the modern phenomena of crushing student loan debt. While tuition and living costs are a critical consideration, going to college doesn’t have to be an anxiety-provoking endeavor if proper planning is involved.
A major part of the college selection process is whether the school meets your scholastic and geographic needs. While nationally known schools with an outstanding reputation are attractive, they are often the most costly. For this reason, it is a good idea to choose a variety of schools that offer the academic curriculum, campus life, and athletics programs you want. To that end, the following steps are useful to take to do a cost of college analysis:
- Compare tuition and living costs for each school of interest.
- Continue to research financing options.
- Make a short list of schools that meet your needs and are financially viable based on a self-assessment of personal/family finances and the research conducted on financing options.
- Apply to the short list of schools. If accepted, you will receive a financial aid package.
- Compare all the financial aid packages.
- Based on each financial package, determine the total out-of-pocket expenses for the school.
- For all out-of-pocket costs in the form of loans that must be repaid, speak with lenders to estimate what the monthly repayment will be post-graduation.
- Research the earnings potential for your major of interest/degree type as well as the likelihood of future employability in this field to determine if the earnings will likely cover the cost of student loan repayment.
- Take into account lifestyle factors post-college such as places you will likely live after graduation. Some cities have higher costs of living that may make future student loan repayments more burdensome.
Planning for student loan debt management before college can be instrumental to a healthy financial and professional future. Some students borrow educational loans without any consideration of future repayment. This is a gamble, and it is important not to fall into this trap.
At the same time, it is important to know that the reality of living with student loan debt may not be as onerous as the media portrays. A recent Brookings Institution survey of households with employment income that are repaying student loans observed that these repayments, overall, were not crushing or crippling despite negative public perceptions of student loan debt. The survey of these households, based on 2010 data, found:
- About 13 percent of the households surveyed had an outstanding balance of more than $50,000 while only 3 percent owed more than $100,000.
- The average student loan balance was $25,700 with an average annual wage income of $71,000.
- The median monthly student loan repayment amounted to 4 percent of household monthly expenses or $242 per month.
- On average, there was more income spent on housing, transportation, food, personal insurance, health care, and miscellaneous expenses than on student loan repayment
Based on those findings, the reality of student loan repayment appears far easier to face than the sensationalized portrayals in the media. Further, sound college tuition and costs planning is a win-win strategy that can only improve the likelihood of successfully repaying educational debt post-graduation.
Factoring in Degree Type
These days, education is not seen as a matter of self-improvement alone; in light of rising tuition costs, education is an investment and it is useful to keep one’s eye on the potential returns on this investment. Ultimately, the degree program a student selects is a matter of personal choice based on academic interests, financial ambition, or a combination of both. The more a prospective student knows about future earnings prospects by degree type, the better informed his or her higher education decisions can be.
In order to know what degree type to pursue, you may need to engage in some meaningful self-reflection and balance such factors as personal happiness, professional fulfillment, income earnings potential, and lifestyle preferences (these aspects of post-college life are not mutually exclusive but may be weighted differently based on personal choice). For the 2013 graduation year, the National Association of Colleges and Employers compiled helpful data on post-college earnings. It is important to note that this data does not account for job satisfaction but reflects income earnings alone, as an indication of the return on investment for degrees in the following categories:
- The top three highest earnings degree categories were engineering ($62,062), computer science ($58,547), and business ($55,635)
- The lowest three earnings category by degree type were humanities ($37,791), education ($40,337), and math and sciences ($42,731)
- The difference in earnings between the top category (engineering) and the bottommost category (humanities) was $24,271.
- Business degrees appreciated the highest percentage increase in earnings compared to earnings in 2012.
- The other degree types all had a modest increase in earnings with the exception of computer science, which experienced a drop in percentage earnings by 2.5 percent.
Employability by Major Course of Study
Earnings are one matter while employability is another. During the college application process, a prospective student will usually not be required to commit to a major course of study. However, at least for the large universities, the applicant will need to know which college to apply to within the specific university (such as the college of arts and science, business, or education). Even at the early level of the college application process, a student is beginning to lay the tracks for his future job. For this reason, it is important to factor in the post-graduation employability of different majors. Some students, post-graduation, will matriculate in master’s programs, PhD programs, law school, or medical school, and students on these paths should consider employability and earnings based on their graduate or professional degree.
The Wall Street Journal reported the following findings based on a 2010 survey of employability by major:
- Across all majors, unemployment rates ranged from a low of 0 percent (actuarial science, geophysical engineering, pharmacology, astrophysics, and school student counseling) to a high of 19.5 percent (clinical psychology).
- The following is a selection of majors that have the highest rates of job placement, with unemployment rates at 5.2 percent or lower: medical technology technicians (1.4), aerospace engineering (3.6), early childhood education (4.1), arts and music education (4.2), finance (4.5), civil engineering, business economics (5.0), computer science (5.2)
- The following is a selection of majors that have the lowest rates of job placement, with unemployment rates at 10 percent and higher: architecture (10.6), educational psychology (10.9), library science (15), U.S. history (15.1), miscellaneous fine arts (16.2)
Relatedly, The New York Times reported on graduates who were in jobs in which a college degree was a prerequisite. The article focuses attention on whether college graduates are receiving jobs that require a college degree, which is a good indication of return on investment by degree type. The article observed the following relevant information for the 2009 graduating class:
- Across all degree types surveyed (including humanities, engineering and business), 77.6 percent of graduates had jobs but only 55.6 percent occupied jobs that required a college degree.
- Education and engineering were the top two degree types where graduates of these degree programs were in jobs requiring a college degree.
- Of all the humanities majors studied, only 45.4 percent were in jobs that required a college degree as a condition of employment.
- Engineering graduates who were in jobs that did not require a college degree earned more than humanities graduates in jobs that do require a college degree which suggests that employers may put a greater premium on skills associated with certain majors, such as engineering, even when the job does not require a college education.
Based on research findings, it appears that professions in engineering and business, for instance, are more lucrative than jobs that traditionally hire graduates of humanities programs. It is helpful for prospective college students to consider their ambitions, including whether they foresee themselves dedicating to climbing up the ladder of master professions, such as engineering or business, or would like to work but also dedicate themselves to other pursuits outside of work that may or may not become lucrative, such as writing, painting, creating inventions, or starting a small business. Earnings prospects can help prospective students not only to think realistically about the returns of their degree type, but also how to think about building a fulfilling life around their likely future earnings.
Managing Debt After Graduation
In consideration of the significant media attention around student loan debt, in addition to federal loan forgiveness programs, the future may provide additional options for easing any burdens repayment presents. While it would not be a sound strategy to rely on relief programs that do not yet exist, it is encouraging to know there is a spotlight on student loan repayment that may help future graduates to manage student loan debt with greater ease than current graduates in repayment.
The Huffington Post, reporting on the topic of the future of student loans, predicts that grassroots activism and some support at high political levels can create a movement to lift some of the weight of paying for education off students. Despite any uncertainty about the future of student loans, it is clear that education remains one of the most golden keys to unlock the door of future success in the job market.