College Cost, ROI, Student Loan Debt, and Mass Hysteria

George Orwell truly understood the nature of our society.  In 1984, Orwell creates a society where three ‘states’ exist and the ‘state’ of the protagonist is perpetually at war with one of the other states, thus creating a sense of fear in the populous designed to keep the masses in line.  This approach is not too different from Presidential politics and the usage of higher education as a pawn in this current Presidential cycle to illicit fear and manipulate the electorate.

Lest someone label me some sort of anarchist, let me explain my position.  In an effort to curry favor amongst voters, the candidates have launched predictable salvos at each other designed to create emotional responses from the middle class.  This year’s cause celeb is higher education.  Why?  Because higher ed is an easy target.  Everyone knows it is necessary for success in today’s economy, and everyone knows that it requires an investment.  However, in a down economy, that investment can seem quite daunting.

To stir the pot, the candidates and their surrogates are prone to hyperbole.  They spout scary statistics about the increase in the overall student loan debt without explaining the information behind the statistics.  They bemoan the rise in college tuitions but don’t look at what students are actually expected to pay.  And, they suggest that somehow a college education is less valuable because people are having a hard time finding a job.  This creates hysteria and scares many away from the most important investment they can make in their futures over an unfounded fear. 

So, let’s examine these arguments and infuse a little reality.  We’ll start with student loan debt.  Yes, overall student loan debt has reached record amounts (passing $1 trillion this year).  However, what no one is talking about is why.  Here’s the answer:  more students are going to college, which means there are more students borrowing.  In addition, the student loan debt total is the sum of ALL student debt including graduate school programs and professional programs such as medical school and law school, not just undergraduate.  To put this in perspective, my doctor wife had over $100,000 in medical school loans when she graduated which counts in that $1 trillion.  However, with those loans came pretty great earning potential and, by the way, loan forgiveness programs to help lessen the burden. 

What about the rising tuition question.  Have tuitions gone up?  Yes, they have.  But, when you buy a car, do you pay sticker price?  Hopefully not.  The same is true with college tuition.  Check out this graphic from the NPR Planet Money blog:  http://www.npr.org/blogs/money/2012/05/22/153316565/the-price-of-college-tuition-in-1-graphic.  What you will see here is that, while ‘sticker price’ has gone up, net price (what you actually pay) has actually gone down as colleges give out more grant aid.  So, over the last 10 years, college actually HAS NOT GOTTEN MORE EXPENSIVE.

Finally, has a college education become less valuable?  One could argue that earning potential has indeed dropped recently for college graduates, but this is not an indictment of the value of the degree, it is a reality of an economy slowly emerging from recession.  In other words, EVERYONE’s earning potential has decreased, but it won’t stay that way forever.  A better question is whether you can afford NOT to get a degree.  Look at unemployment.  The national unemployment rate is 8.3%.  However, the national unemployment rate for college graduates is under 4% while it is over 15% for non-college graduates.  Today’s global economy requires education, and education isn’t free.   It costs money to provide first-rate facilities, keep up with rapidly changing information technology, hire good teachers and, by the way, feed and house students.  Residence halls aren’t tents – they are your home away from home and need to not only be comfortable but conform to codes and regulations for occupancy and safety. 

Let’s go back to my doctor wife.  She comes from a decidedly blue color background.  In fact, she grew up in a trailer.  Today, she is a doctor.  Think the investment she made in her education wasn’t worth it? 

Before you consider running away from higher ed, examine all the facts and consider the investment you are making in yourself and in your future.  If you want to own a home, have a family, be able to take vacation and climb the economic ladder, you need an education.  And now is the best time to go to college.  Why?  Net cost is down and, if you don’t go, do you think you will get a job in this economy?  But if you wait until the economy gets better, you’ll be enrolling in school when you should be graduating and getting the benefit of graduating in a good economy – that is return on investment.