Invest in yourself
Is College Still Worth It?
Present circumstances versus future reality
The Student Loan Problem
There has been no shortage of media coverage on the student debt problem in America but let’s quickly review the numbers.
Tuition Has Skyrocketed Over the past 30 years
- In 1988, the annual tuition for a 4-year public institution was $3,190.
- In 2018, the annual tuition for a 4-year public institution was $9,970.
That is a 212% increase.
- In 1988, the annual tuition for a 4-year private institution was $15,160.
- In 2018, the annual tuition for a 4-year private institution was $34,740.
That is a 129% increase.
And yes, these numbers are adjusted for inflation
Student loan debt has been increasing with tuition costs.
- 7 out of 10 college students graduate with student loan debt
- The average student loan balance is more than $37,000
- Total student debt is more than $1.5 Trillion
Impact on recent college grads
Starting your career off $37,000 in debt has both tangible and intangible impacts on recent college grads.
The tangible impacts
Consider the following facts.
- The average student loan payment is over $300 per month.
- Housing prices and rent are near record highs in many urban areas.
- Recent graduates are spending more money than previous generations on caring for elderly parents according to a report by the Wall Street Journal.
Add those three things together and you know what you have? A generation with historically low levels of disposable income. That is the problem that new college graduates face. The lower your disposable income the lower your margin for error when handling your finances. By the time your student loan and rent payments come off your paycheck, there’s not much left.
This leaves less money to live and less money to invest.
The intangible impacts
Starting off your career with student loans the size of a small mortgage can take a toll on a person psychologically. I know the feeling of looking at your student loan balance and feeling like you will never pay it off. Part of the problem is that as humans we tend to think of our present circumstances as our future reality. This is a mistake that is a tremendous source of anxiety and fear.
Present circumstances versus future reality
A 22-year-old who just graduated college is making $45,000 per year and has a $90,000 student loan debt might feel hopeless. They look at their present circumstances and say, I have a student loan that is twice my income, I’ll never be able to pay this off. If I told that same 22-year old that in 10 years they will be making $145,000 per year, they would likely look at that $90,000 student loan a bit differently.
The future reality is much more pleasant than the present circumstances. Most people tend to focus on the fact that our future reality is not guaranteed. Neither is your present circumstances. I am reminded of one of my favorite quotes from Les Brown who said, “Rough times are going to come, but they have not come to stay, they have come to pass”.
Interpretation: Your student loan is an incredible burden today, but eventually you will pay them off.
The question remains, is a college degree still worth it?
The short answer is yes.
When we look at the data from the Social Security Administration it becomes clear that a college degree is still worth it.
- Men with bachelor’s degrees earn $900,000 more lifetime earnings than male high school graduates
- Women with bachelor’s degrees earn $630,000 more than female high school graduates
- Men with graduate degrees earn $1.5 million more lifetime earnings than male high school graduates
- Women with graduate degrees earn $1.1 million more lifetime earnings than female high school graduates
Remember the average student loan balance of new graduates is $37,000. Think of it this way; would you invest $37,000 today if you knew it would turn into $630,000 to $1.5 million over the next 30 years? I sure would.
You may say that a lot of people graduate with much higher debt loads than $37,000. While that is true, it is also true that the majority of student loan debt is held by those with graduate degrees who make the most money and can most easily manage their student loans.
Go down the line of any metric you want; annual salary, homeownership, retirement savings they all point to the same conclusion. People who graduate from college accumulate more wealth than those that don’t.
So, while your present circumstances of a large student loan make you feel miserable and hopeless remember that your future reality is bright.
Yes, college is still worth it with one major variable; You. Whether or not student loan debt is worth it to get a college degree depends on how you use that degree. You get out what you put in.
If you take on $200,000 in student loan debt to get a law degree and then decide you don’t want to be a lawyer that is a recipe for financial disaster. If you choose to use that law degree and one day become a partner at a law firm, that $200,000 may be the best money you ever spent.
I’d love to hear from you. Did you take on major student loans to get a college education? Was it worth it for you? Let me know in the comments below.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions