Life

College is becoming a less worthwhile investment

Going to college always seemed like the first step to living a comfortable life. However different statistics, such as the real tuition cost of American colleges increasing by more than 130% since 1985, show this might not be the case.

“If I had to pay for my own tuition, I would not go to universities in the states and probably go to schools here,” said Kazune Fei, a 17 year old high school student currently living in BC. Fei, like many other prospective students, believes the costs of going to US colleges outweighs the benefits.

Some high school students may wonder if going to college is really worth it.  From looking at American unemployment rates and the additional wage earned by college graduates, one might say going to college is a rational decision. However, economic research in the U.S shows that the continuously increasing costs of going to college is decreasing the net financial benefits of going to college.

For most of the 20th century, getting a post secondary degree was seen as a direct pathway leading to the middle class. However, different methods of measuring the value of a college degree shows that this may no longer be the case. 

Throughout the history of American employment market, people who had bachelor degrees steadily had a lower unemployment rate than people with highschool degrees according to the National Center for Education Statistics. Simply put, if one goes to college, they have a higher chance of getting a job. This is one of the most common reasons why people want to go to college: they want to get jobs. But while college graduates continue to have higher employment rates than their non-college educated counterparts, employment rates alone do not tell the whole story.

This is where the concepts of college wage premium and college wealth premium come in.

College wage premium measures the difference between the income of college graduates and high school graduates. If this number is high, it means that college graduates make a significant amount more than people with only high school degrees. If this number is steadily increasing, it means that the wage of college graduates is increasing relative to the wage of high school graduates. 

Many American students and parents think that it is not worth going to college, since the actual differences in income are not enough to justify going to college. According to a Pew Research poll, 75% of Americans say that American colleges are not affordable and 57% of Americans say that the higher education system is providing them only fair or poor value for the money they invested. 

“I think wage is too low to do things you want to do,” a sophomore studying psychology at Boston University told 8forty. However, researchers have found that the college wage premium has remained the same and has even increased in recent years. 

Source: Is College Still Worth It? The New Calculus of Falling Returns, Federal Reserve Bank of St. Louis

As shown on the graph, there has been a consistent difference of income between families with bachelor’s degrees and people with less than a bachelor’s degree. From the information listed so far, a college education seems really attractive doesn’t it? So why do so many Americans think that going to college gives them only poor or fair value to what they are investing?

College wealth premium is the true reason why post secondary enrollment seems like a poor decision. This concept refers to the average difference between overall wealth of people going to college compared to the wealth of people with only highschool degrees. When this number is high, it means the wealth of college graduates is much greater than the wealth of highschool graduates. According to the Federal Reserve Bank of St. Louis, this number has been decreasing since the mid 20th century. For those graduating in the ‘60s, owned almost double the wealth of similar non graduate families. However those graduating in the early 2000s earned only 42 percent more wealth than non graduate families.

One might wonder how the college wealth premium is decreasing when the college wage premium is increasing. There are several plausible explanations to why this is according to the Federal Reserve Bank of St. Louis.

The Federal Reserve Bank of St. Louis identified that the increasing price of going to college is one of the reasons why the college wealth premium is decreasing. In America, the cost of tuition and other fees increased by a factor of 14. The study also stated that there was a steep decline in wealth for people who attended college after 2000 in line with the tuition or cost explanation. 

According to Investopedia, half of all American students apply for student loans and the average student loan debt is $37,500. A study conducted by New York Life states that the average time it takes for an American to pay back their student loan debt completely is 18.5 years, which makes taking out money for student loan debt even worse. The sophomore attending Boston University understands just how lucky he is. “I’m glad my parents paid for my tuition fee,” he said. “I would not be able to go to a good college like I am right now.”

Some students like Fei are lucky enough to have parents that are able to pay for his tuition. Others often face a challenging decision. With the rapidly increasing costs of going to college and the benefits being stagnant, going to college might be a financially nonsensical decision, unless the student has a way of covering their costs.

Another factor to why the college wealth premium is decreasing is that there is financial liberalization to people who go to college. Financial liberalization is where there is less government intervention in financial transactions. This could lead to economic growth, but leaves the country susceptible to financial crisis. Younger cohorts were found to have more debt, especially ones born after 1980. Furthermore, there is a specific group of younger cohorts that have a higher debt ratio than others: college graduates. College graduates have more access to financial instruments than non-college graduates, in particular student loans. Federal Reserve Bank of St. Louis shows on average that a college graduate’s balance sheets are progressively weakening. With more access to credit, and not enough financial knowledge, they are more susceptible to going into debt.

The last reason the college wealth premium is decreasing is because of the aggregate wealth fluctuations. Aggregate wealth means the sum of all wealth, such as income after tax and values of assets that can make income. Older cohorts that graduated from college were able to purchase assets with increasing value, such as houses, more easily than cohorts that came after them. Values of many assets that were available to be purchased at a favorable price has risen as time passed and wealths of older graduates were able to increase. These assets were able to cover for the expenses the older cohorts spent for a post-secondary education. However, today it is very unlikely for a college graduate to buy assets with increasing values, such as houses, at an affordable price. 

“It seems impossible that I would be able to buy a house in the future looking at the prices right now. I would honestly just pay rent instead of paying for a full house,” a 21-year-old American college student told 8forty. “I am not going to spend most of my life trying to save up for a house. I think house prices are too high compared to the wages people are making.”

Most high school students have wondered if going to college is really worth it and if there is a high enough value of college degrees that makes it worthwhile receiving post secondary education. Nowadays, it seems like going to college seems like a senseless decision for students that are paying for tuition themselves and applying for student loans.Taking on additional debt, especially when there are limited opportunities to purchase favorable investments even with their higher income, makes the decision even more uncertain.

Cover Image: Pixabay

5 comments on “College is becoming a less worthwhile investment

  1. Pingback: The capabilities I have demonstrated through my work in New Media Lab – Ben Park’s blog

  2. Adrian Zhang

    Oh my god BEN You are SO GOOD AT WRITING!!!!!!! Your writing is better than Dylan Nelson’s!!!!

    Like

  3. Why your blog name (Untitled)?

    Like

  4. Regarding the push for free college, people who want college to be free because they can’t afford it are just looking for handouts.

    Like

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