The Case For And Against College
An article in the Chronicle of Higher Education that was forwarded to me (and which requires a subscription, so I won't link it) prompted me to finally complete this Ticker, which I've been working on for a while.
The question that is facing a bunch of 18 and 19 year olds right now, and will be facing 17 and 18 year olds coming into their Senior Year, is, quite simply: Where do I go to college?
Let's back up and change the question, because frankly, put as stated up above, the answer might be "nowhere!"
Let's first run some numbers so as to put in perspective exactly what the choice to go on to a post-secondary education costs you.
And yes, it does.
I'm going to make a few assumptions here:
You have a brain.
You will use it, which means that you will not in the general case live beyond your means as a young adult. Specifically, we will assume that you will save (not spend) a full 10% of your income (and before you argue "that's impossible!" it's a hell of a lot easier when you have no dependents and are unmarried than at any other time in your life! Trust me on that - giving up your Friday night beer binge is much easier than your baby's formula!)
Now let's further make an assumption that you can make $10/hour in a job out of high school. That's not much. If you work 2,000 hours in a year (that's 50 weeks of 40 hours each) you will make $20,000 gross. Save 10% of that, it's $2,000.
Ok. Here's the basics. We will assume you use five years to complete college. Most kids do - and colleges do their level damndest to make it happen. Yeah, I know, it's a four-year program. Watch how classes you need as pre-requisites magically are unavailable at a key point - just once - to guarantee that fifth year. It happens far too often to be a "mere" coincidence. We're going to go further and presume you will not take debt, which means you're going to actually do something productive during your college years to pay your way, which makes the "compressed" programs (e.g. 3 year) pretty much impossible.
Ok. You start at 18 and "retire" at 65. This is 47 years.
If you go to school you have 42 years to accumulate surplus.
What do the five years cost you?
That depends on the compound growth rate. We're going to be extremely conservative and assume only 30 year Treasuries are invested in, and further, that they earn only 4.5%. This is a bit above today's coupon, but is much below anything considered "reasonable history." That is, we're being damn conservative in our assumptions - no "8% return" nonsense as is often touted by pension fund managers or worse, 10-11% "quoted" by stock promoters.
If we save $2,000 a year @ 4.5% interest for 47 years we will wind up with $307,345.27. If we do so for 42 years we wind up with $237,849.58.
This means that in future values that five years costs you about $70,000 down the road. Note that this does not account for inflation (and it's impact on your purchasing power) nor does it matter if your savings rate changes after the first five years - that is, the $70,000 is real opportunity cost in retirement savings.
(BTW, if you're interested, at 8% the differential is nearly three hundred thousand dollars, which illustrates one of the key points in the game here - being wrong on the "presumed return" can hurt you terribly.)
Now, you say, but you will earn more with a college degree. This is likely true - but to a large degree it depends on exactly what field you decide to go into.
A degree is not necessarily a license to print money. Indeed, if your degree is in a "soft" field it may have negative real value compared to a trade, in that the time you take off from working can never be replaced. Consider the journeyman in a skilled trade, who uses the five years to acquire a skill and is thus a skilled craftsman at whatever - whether it be electrical wiring or plumbing or some other vocation. Never mind the fact that it's damn hard to "offshore" installing or repairing wiring in a building; the same cannot be said for programming a computer!
Therefore, my guideline for Seniors and those endeavoring to matriculate this fall is as follows:
If your field of study is in a "soft" science: Literature, arts, journalism, political science or similar then you can only justify your education if it can be completed in full without taking on one dollar of debt. That is, if you can self-finance it through employment, scholarship, gifts or savings. If not you are almost certainly wasting your money.
If your field of study is one where a degree is allegedly required, you may be wasting your money. "Allegedly" required areas are things such as computer programming and similar endeavors. The claim (oft-repeated in ads in the paper) that one cannot get a job in these fields without a college degree is false. I stand as personal testament to this. What is true is that if you suck, you won't be employed without a degree, but if you suck you shouldn't be employed anyway, and degree or no degree, you won't be employed for long.
If your field is one where the work can be offshored you will be competing with the wages of people in India but they will not have paid the price you did for your "education." Think about that one long and hard. Plenty of computer engineers and similar supposed professionals have discovered this the hard way. The rah-rah rage of the 90s where you could get a computer science degree and land a $100,000+ job have given way to employers sending those jobs to India - for $25,000/year. Guess what wage they offer you? Yep. Again, if you really enjoy the work that's fine, but not if you have to take debt to complete your education.
If your field is capacity-controlled and, after careful study you are not concerned about a glut that could trash prices or government intervention (same), then and only then does the "chase the degree for high dollars" game make sense. Good luck with that premise - but these are the only fields where taking any debt works. Lots of kids have tried this in the medical fields, for example, only to run smack-dab into Obama. Ditto in the legal fields. There are surprisingly few Cochrans who have ever lived (the famous one who defended OJ is of course dead) and a hell of a lot of lawyers who wind up pushing paper for mid-five-figures in some company. How's $200k worth of debt going to work for you if you go down that road and wind up in that dead end? You might want a pistol - for your mouth. Don't go there - avoid the pitfall rather than figuring it out after you make the mistake.
Be very, very aware that in a number of fields - especially things such as computer science or computer engineering - the college you are looking at may have horrific conflicts of interest. Specifically, a number of universities are effectively captive "employee mills" for certain employers in their region and state. Their programs are tailor-made for that particular employer or group of employers and what they want as graduates, effectively becoming their captive training enterprises. This is great if you want to work for "Company X." It sucks severely if you don't and discover post-graduation that your skillset has been "tailor made" and doesn't mesh well generally with the marketplace - but rather, is matched well only with one or two employers in a given region. This is a hell of a lot more common than you'd think, including among public university systems, and is NEVER, EVER disclosed up front.
College "educations" have grown in price at more than double inflation - that is, twice as fast in real costs over the last 20 years.
Why?
Because the college industry has managed to get laws passed that make their funding sources damn near immune to the problems that face most businesses when they go overboard and try to pump prices beyond value.
Specifically, your parents will be pressured to fill out and sign a "FAFSA" form, which is a federal government form that will then turn around and tell your parents what they're "expected" to contribute to your education. (Incidentally, the point of being 18 is that you can not only give your parents the finger should you so choose, they can give you the finger. It's called being an adult, and in the real world one does not have a right to "expect" things from one's biological parents beyond their 18th birthday. This outright scam was promulgated by the universities themselves and written into law. Go thank your local University Provost - by spitting on his shoe. Family ties beyond 18 should be based on mutual respect, not government guns up your Mom and/or Dad's ***. Chew on that a bit and consider how much you'd like being told to go to your room at 18... I think you'll figure it out.)
Next, the screwniversity system managed to get written into federal law an exception to the bankruptcy laws. If you're young, you probably don't understand these laws, but you should. Essentially the point of bankruptcy law (which goes back to before The United States, incidentally, and is actually in the Constitution - Article 1, Section 8) is that it serves as a check and balance on creditors loaning you money that they know you will never be able to pay back. If they do that and you go broke the bankruptcy process cleans the slate, more-or-less, and the person who loaned you that money foolishly loses - they can't collect. Student loans are exempt from this except in certain very narrow circumstances, which means if you get in over your head that's your problem and you can't discharge the debt! The creditors both can and will hound you, sue you, and pursue you, adding interest and penalties to the point that it may become almost literally impossible to ever pay them off. Remember that gun thing up above again? Yes, let's not get into a place where we might decide to use one on ourself, ok? You're young - have a long life, not a short and tortured one.
Then there's entitlement, and there the blame is partly those of kids who have come before you. College dorms used to be cinderblock buildings with four walls and a shared shower and toilet between two rooms, each of which held (usually) two students. No cable TV jacks, no posh condo-style "dorms", etc. Yes, there was a pool and weight room and such - in the gym, halfway across campus. Food was, well, bad. Ask you Mom or Dad. Today so-called "Student Life" in these institutions is more like living in a luxury condo than a dormitory, and the price has matched it. Then there's the other signs of opulence, including massive building programs for facilities that are, quite frankly, nice but not necessary. Who pays? You do, whether you will ever use these facilities or not.
Add all this up and you have a college environment that was basically free to hike prices willy-nilly, and still is. They did it because they could effectively gyp you and your folks into funding it, never mentioning that if you defaulted on a student loan you were absolutely and completely screwed, as unlike any other sort of debt it can't be discharged.
This is not explained in the financial aid office, nor in admissions - if colleges were honest they wouldn't have any dupes, er, "customers", er, "students."
Yeah.
So with that said, how can you fight back effectively?
Simple.
First, use the above to determine whether you should go at all. For many people the answer is "yes, but." The "but" is this: no debt of any sort.
Now figure out how to get the education you want or need without the debt. That's not impossible, even today.
First, consider if you are still in high school and can get enrolled in a program where you get college credit, do it. Yes, your High School year(s) will have fewer football games, fewer nights screwing your girl (or boy)friend, and fewer late night romps of various sorts. But in some places, including parts of Florida, it is possible to graduate High School with an associates degree - that is, a two year college degree, fully paid and earned at no cost.
If you can do that you just covered half the price even if you do nothing else. Free lunches are rare and there is usually a catch - this is one of the few times you really can eat that lunch and not get a bill later.
Next up, assuming you didn't or can't do the above, is to do the first two years at a community college. Why? Because it's a hell of a lot cheaper, that's why, and most of your first two years are spent in "core" classes (that is, mostly liberal arts and general things that aren't particularly field-specific.) They thus transfer without problems. In addition this gets you out of the trap of forced residency in a residence hall (at grossly overinflated prices) that many universities enforce for the first two years.
You might think from the above that I'm "anti-college." You'd be wrong. A college education's primary purpose is not, for most people, about teaching you a trade. It is, or at least should be, about learning how to think critically. This, incidentally, is what should be taught in high school too - but isn't. Several universities have destroyed their value in this regard with hard-left liberal slants in the "soft sciences", and indeed you will even see some academics argue that it is their job to try to "mold" your opinion. This is pure bilge, but it's what you're paying for in some of these schools, so do be aware of that fact - and if you detect it go somewhere else.
My argument is mostly about the fact that in virtually every case if you are unable to pay for your education either from contemporary earnings (that is, working while in school), scholarships, savings or voluntary gifts from family and relatives the taking on of debt to do so is a bad idea, and that it has been an intentional and concerted effort by universities and the minions in industry that have driven costs so high - and then tried to argue that you "should" just suck it up and deal with it.
I argue the opposite - that unless a dispassionate analysis provides an argument for some course of action, when it comes to financial matters, you shouldn't do it - and that in virtually all cases that dispassionate argument simply has no foundation when it comes to debt and post-secondary education.
Tell the debt-***-screwniversity industry this, lest they shove it up your backside:
