May 17, 2011

I owe, I owe, its off to work I go...Is College Worth It?

I saw a link to the College Loan Debt Clock which in turn led me to the New York Times article linked in this post's title.  It seems that for the first time in (recent?) history in this country the total debt that individuals accumulate to go to college has exceeded credit card debt.  According to data from the Times article, credit card debt rose from $600 billion in 2000 and topped out at nearly $1 trillion about 2008 and has since fallen to just over $800 billion.  Student loan debt on the other hand was less than $200 billion in 2000, and has risen steadily to over $800 billion today, a jump of more than a factor of four in one decade.  To provide another perspective not the the Times article, the total US mortgage debt roughly doubled from $6.5 trillion to over $14 trillion over this time period.

This trend is very clearly shown in the just released report from the Pew  Research Center "Is College Worth It?".  This very informative report seeks to provide data on the costs of college from two polar perspectives- the American public and college presidents.  The report is a wealth of information on the actual costs of college and the public perception of same.

Interestingly the ratio between the earnings of young people with college educations and those without peaked in the early 1990's and has stayed flat since the early 1990's...
...while the inflation adjusted (to CPI) costs of college are climbing steadily.
It seems that this trend is not sustainable broadly although looking at this data on a very large national scale likely hides other trends for particular majors or employment categories.  It is not surprising given these trends that college debt is increasing.

The Pew report spends a good deal of time looking at the question of debt.  It is clear from data in the report that the costs of college track almost linearly with the total debt owed for college.  The New York Times article quotes several economists who classify both home mortgages and student loans as "good debt" and credit card debt as "bad debt" since both homes and a college education have long term value.  However as the two figures above seem to indicate, that while this is true now, if costs keep rising and the wage differential stays flat this will eventually be an historical assumption and not reflect reality.  In fact as the Pew report hints at, this is already the reality for large sections of our society that are traditionally under-served by higher education.  The three top reasons for not attending college are, at their root, all financial.

The Pew report also tracks a steady downward trend of the public's belief that college is affordable or a good value for the money.  College presidents, on the other hand, tend to be more optimistic about college, but 57% say that most people can't afford college.  A surprisingly large percentage of college presidents believe that the US higher education system is not the world's best or heading in the right direction.  Interestingly the more selective the college, the more the belief that it is affordable and the US higher education system is the world's best.  I guess, on reflection this isn't so surprising since we all tend to see things from our local perspectives and why should presidents of elite colleges not be biased by the view from their offices?  Although the differences between selective and non-selective institutions are not huge, this is a worrisome data point since it is the more elite schools that tend to drive change in higher education.

The Pew report does break down earnings by degree using a "synthetic work -life earning estimate" by which they mean how much a degree holder earns if future wage trends mirror historical data.  The figure below shows lifetime earnings of bachelor (or higher) degree holders in millions of dollars.

Engineers do well, even compared to science and medicine.  The report splits engineering BS degree holder from MS degree holders and finds a lifetime earnings of $1.7M for the BS degree recipients and $2.1M for MS degree holders, showing the extra investment in an engineering master's degree is well worthwhile, at least for the population at large.  To compare the low person on the totem pole, education, the lifetime earning differential between a high school diploma holder and a Bachelors in education is only $80,000!  Clearly major matters.

1 comment:

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