What's college worth? Tips for getting a good return on investment

College is an investment; whether it's a good one or a bad one is up to you. Photo: Jim Picht

WASHINGTON, December 29, 2013 — The year-end holiday season is stressful for many of us, but high school seniors face a special source of stress at this time of year: college applications and the wait for letters of acceptance or rejection.

There’s a great deal of pressure on students to attend college, from parents, from teachers, from friends. Before deciding to go to college, you should ask why you want to go. College is expensive, and it can leave you buried under massive debt. The job prospects available to college grads aren’t what they were a generation ago.

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More than 40 percent of college graduates from the last three years are unemployed or underemployed. That is, they have jobs that do not require a college degree. Sixteen percent of recent graduates have only part-time jobs. Only 53 percent of recent graduates have full time jobs related to their college majors. In 2012, there were 284,000 college graduates earning at or below minimum wage.

Why, then, go to college? A four-year college degree is a form of investment in human capital. On average, the investment still has an excellent return, but if return on investment (ROI) is your primary motivation, you should consider other options. In Texas, the median salary for graduates of two-year technical colleges is $50,000 one year out, $11,000 more than the median for bachelor’s degree holders. In Colorado, the difference is $7,000 in favor of the associate (two-year) degree.

If that seems counterintuitive, consider this. Those four-year degrees include majors in English, sociology, art, philosophy and a host of other majors that don’t translate into high-paying jobs. Those two-year technical colleges and vocational schools don’t teach sociology or philosophy; they teach subjects like plumbing, electrical contracting, and other fields not taught in four-year colleges and universities.

Let’s assume you’ve decided to go to college. On average, a high school graduate with no higher education earns $1.3 million over a lifetime. Some college takes that to $1.5 million; a bachelor’s degree raises lifetime earnings to $2.3 million. With average total annual costs of $22,900 for in-state public colleges ($45,000 for private colleges), a $100,000 investment in a 4-year degree has an average return of $1 million over a lifetime.

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That’s average. Some schools are much more expensive than others, and some have a better ROI than others. Remember that ROI depends on two things: how much you spend on school, and how much you earn as a result of that expenditure. Far more important to that equation than the school you attend is the major you choose.

An English degree from Harvard without scholarships to cover it is a luxury for the rich. The return will rarely justify the expense. The ROI on English and sociology degrees is poor. The ROI on a petroleum engineering degree is excellent; the median starting salary for petroleum engineers is over $100,000, and most of them have job offers before they graduate. The ROI on English and sociology degrees is poor no matter where you go to school, but attending a private school will slash your returns by two thirds.

A purely financial return on investment isn’t everything. Some people will major in education because they want to teach. The return in personal satisfaction can be enormous. People study music not because they expect to get rich, but because they can’t imagine doing anything else.

Satisfaction is important, but it is essential that you make the college decision with open eyes. The best of all possible worlds is to major in something you love, do it without taking on debt, and to find a job in that major when you graduate.

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With all that in mind, here are some tips for improving your odds of making a good return on your college investment:

1. Choose your major carefully. A hot major today may not be as hot in four or five years when you graduate, especially if it isn’t a so-called “hard” major — one requiring heavy mathematical and analytical skills. English literature can be a wonderfully enriching field of study, but don’t choose it with any idea of making money from it.

2. If you’re not certain that college is for you, attend a community college first. These colleges are much less expensive, and a state university will almost always accept transfer credit from a state community college. This reduces your chance of landing deep in debt without a college degree, and because many of your classmates will be older, there are fewer distractions to the new student than at a large university.

3. Attend a college in your home town for at least the first two years to reduce the cost of housing. Again, you can always transfer to another school, and the odds that you will be distracted from your studies and flunk out deep in debt are lower.

4. You can get as good an education at a good state school as you can at an Ivy League school. The courses and books are pretty much the same, and some Ivy League professors are so busy travelling the world being famous that they turn over most of their teaching duties to teaching assistants. The real difference between a top tier school and a lower tier school is in the students. Much of your education will take place when you study with classmates, not in the classroom. Choose good and serious fellow students to study and hang out with. Not only will your friends make or break you in school, they will be the nucleus of future networks that will help you find jobs.

5. Work for a year or two before attending college. The gains in maturity between the ages of 18 and 20 can be dramatic, and they can give you a huge advantage in study habits and in the competition for grades.

6. Take a reasonable course load in your first year, and avoid time-consuming extracurricular activities. Extracurricular activities can greatly enrich your college experience, but if you start with a GPA deficit at the end of your first year, you’ll have a very difficult time digging yourself out of it.

7. Choose a major that you love. If you enjoy what you do, your work will never be a job and you’re more likely to excel.

Don’t be upset if you don’t get into the school of your dreams. The evidence is that in the long run, the school you attend doesn’t matter nearly as much as your major and as your classmates. If you do well at a lower-tier school, you can do graduate work at a higher-tier school, if that’s what you want. You’re much better off excelling at a good state school than doing poorly at a top-ranked university.

You’re the one who has to live with your degree and your life, not your parents, not your friends. Never attend a school because someone else wants or expects you to. Never choose a major to satisfy anyone but yourself. But do think carefully about what you want from a higher education and be realistic about what you can expect from it. Then savor every moment of your experience and milk it for all it’s worth.


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Jim Picht

James Picht is the Senior Editor for Communities Politics and teaches economics and Russian at the Louisiana Scholars' College in Natchitoches, La. After earning his doctorate in economics, he spent several years working in Moscow and the new independent states of the former Soviet Union for the U.S. government, the Asian Development Bank, and as a private contractor. He returned to Ukraine recently to teach principles of constitutional law and criminal procedure at several Ukrainian law schools for a USAID legal development project. He has been writing at the Communities since 2009.

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