Is College Worth It?

I happened to watch a TV crime drama recently and the criminals were a group of graduate students who were caught selling biotech research data to a shady entity. At the end of the show one of them blurts out a number, which represents the amount of debt he has incurred in student loans while pursuing his education. Then it hit me how bad the conditions are for these young adults who are entering the worst job market since the Great Depression.  Some are calling them the lost generation.

There are indeed bleak data, headlines and personal stories all around us validating this conclusion. I have a personal friend whose grandson, after graduating as a valedictorian with a chemical engineering degree, has yet to find a job after one year out of college.  A colleague’s client’s son armed with an engineering under-grad degree, a JD from a prestigious law school, after passing the bar exam has not been able to find a job. He presumed that those degree combinations would place him safely at the top tier of legal field of his choice to become a patent attorney. My own son is back home after his graduation from one of the most highly regarded art and design schools a year ago, still struggling to land his first job. The Bureau of Labor Statistics reports that 50% of recent graduates are either unemployed or under employed.

While the average amount of debt for a 2011 college graduate was $27,200, or $34,000 including parent loans, it is not uncommon to see some come out of college with student loan debt well into 6 figures. The total student loan debt surpassed the 1 trillion dollar mark and now exceeds consumer debt in the U.S.  Some economists are speculating that this landscape will cast a long gloomy shadow in the lives of this generation as well as the society as a whole. The former students saddled with burdensome student loan debt, which cannot be forgiven even in most bankruptcy cases unlike mortgage debt, are inclined to put off marriage and purchase of a home.  Also many baby boomers carry some of this burden through parent plus loans or cosigning with their children at the expense of their own retirement savings.

So what is a good financial planner’s advice regarding the question ‘Is college worth it?’ The short answer is yes but with some caveats. The unemployment rate for adults at least 25 years old with a college degree is 4.1% compared to 8.7% for the high school graduates according to the Bureau of Labor Statistics.  The BLS also shows that the median income of high school graduates was $33,176 while college graduates’ median income was $54,756 for 2011.

But not all college education cost makes sense. The students and the parents should consider where to study and what to study as some private college expenses can reach $40,000 plus a year and certain majors in tech related field still enjoy high demand from the employers even in this economy. Following your heart can be a luxury not too many can afford these days. Likewise it makes little sense to have an education debt north of $100,000 with no prospect of earning above $35,000 salary in a chosen field. While weighing the options in schools and majors, the students should proceed with their eyes wide open since their decision could impact their financial lives in years to come if they must incur a substantial educational debt.

As for the parents, I would advise them to take a parents’ Hippocratic Oath of ‘do no harm’ to their retirement savings. As much as you would like to help your children to take the right steps to get a good education and stable and fulfilling life, you can not jeopardize your own plan and savings for retirement and should place retirement savings as your highest priority. If you are able, and willing to support your children through current assets, college savings and manageable loans with “no harm done” to your own retirement savings, by all means, have at it. Otherwise some unpleasant conversations about college, major choices and affordability might be in order. And that would be a conversation worth having!


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