Is a College Education Worth It?

This question gets harder to answer with each passing year.  It may start to get easier to answer if tuitions keep rising at the same pace.

Price inflation has been relatively low since the early 1980s, but especially low in the last decade.  Of course, I use the term “relatively”.  We get ripped off by the central bank through the depreciating currency.  But compared to the 1970s, or compared to most third-world (or even some first-world) countries today, price inflation is relatively low for the holders of U.S. dollars.

However, college tuition keeps rising at a faster pace than the reported price inflation.  Even if you think the price inflation numbers put out by the government are significantly understated, there is little doubt that the cost of college is rising faster than most consumer goods.  The one major exception to this is medical care costs, or insurance premiums in particular.

We talk about stock bubbles or real estate bubbles, but we don’t hear much about a college bubble.  It is certainly a different animal, but I do think there is something of a college bubble.  I don’t think the trend is sustainable.  At some point, it becomes just like housing in the mid 2000s.  Middle class people just can’t afford it anymore, even with creative loans.

I have no idea when this college bubble will pop.  I don’t know if it will be gradual or rather sudden.  It isn’t going to be as sudden as stocks, or even real estate.  I assume that college tuitions are not constantly changing throughout the year.

There is value in a college degree for employment.  Whether you think college in itself is valuable is almost irrelevant.  The fact of the matter is that it is used as a screening device by many employers.  I don’t know whether they want to find someone who can tolerate four years of boredom, or whether they actually think it makes you smarter.  Or maybe the college degree just shows that you are capable of finishing what you started.

I know there are statistics quoted about college graduates making a million dollars more during a lifetime than non-graduates (or whatever the statistic is now).  This presents one of the common mistakes people make in economics.  It is confusing correlation and causation.

Are college graduates making more money because of the skills they learned in college?  To a certain extent, they may be making more money because they have the degree that gets them past a certain screening point with the employer.

My bet is that these college graduates would have made more than average even if they hadn’t gone to college.  Unfortunately, this is impossible to prove either way.

To answer the original question (Is a college education worth it?), I think it is an individual question.  It depends on each individual’s circumstances and goals.

If you really just want to learn, I would suggest doing research on the Internet and reading books.  You will probably learn more this way.  If there is something specific you want to learn, you can always take a specific class.

If you want to be a doctor or lawyer, you pretty much have to go to college because of the government’s certification requirements.  The same goes for a few other professions.

If you just want to make more money in your life, I think it is important to narrow down what you want to do and how much a degree with benefit you.

Of course, the biggest factor is the cost of the degree.  I wouldn’t recommend spending six figures for a four-year degree no matter what school it is or what degree you are getting.  If you can go to a cheap local school for a few thousand dollars per year, then it makes the decision easier.

Another option is that high school students can often take classes to get college credits, or they can take exams to test out of certain college classes.  If you can gain a significant number of credit hours before actually setting foot on a college campus, it could reduce your costs considerably.

I don’t think parents necessarily owe a college education to their children.  It is nice if you can help out, but you shouldn’t feel obligated, particularly in today’s economy.  You can let them live at home (rent free) while they attend classes.

If you have young children, I wouldn’t stress out about saving for a college education.  If the college bubble pops, it may solve your problem.  I think competition, coupled with the Internet, will help reduce costs in the long term.  I also think more companies will realize that a college degree doesn’t mean as much as it did in the past.  It is better to find a good employee that is able to adapt and learn new skills quickly.

I don’t recommend 529 plans at all.  If you want to save, just save in a traditional taxable account (or in a Roth IRA where you can still withdraw the principle without penalty).  You can decide later if you want to use some of the money to help your kids.  When the time comes, maybe you would rather spend money to help them buy a starter house or start a side business.

The best gift you can give your children is to prepare them for life.  This doesn’t have to include a college education.  It would be better if your child learns entrepreneurial skills that can be used at any time.  It is better not to be dependent on an employer.

A college education is only worth it if it will further your life goals without burdening you with the costs.  You can always choose to work for an employer and slowly get your degree.  Maybe the employer will pay for it.

In conclusion, it is best to focus on what you want to do and whether a college degree is necessary to achieve that.  If you do need or want a college degree, find ways to reduce the costs.  You don’t want to be burdened with debt when you are just starting out.

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