Sunday, June 03, 2012

Is a College Education Worth the Cost? (Part 1)

A new crop of college graduates will be entering the job market this summer, and they’ll have to confront one of the slowest-growing economies in history. Most of them will have tens of thousands of dollars in debt hanging over them during their job search. Nationally, total student loan debt now exceeds one trillion dollars, and those with federal student loans will see their interest rates double this summer if Congress doesn’t act to extend current subsidies.

Is a college education worth all of the expense? A study last year by the Pew Research Center found that a majority (57%) of Americans feel that higher education fails to provide students with good value for the money spent, and 75% say college is too expensive for most Americans to afford.

The conventional wisdom has been that college is one of the best investments you can make. For years, many parents have believed that getting their child into college would guarantee they’d get a good job, or at least a better job than they could get with just a high school diploma. But in a world economy that’s changing rapidly, the conventional wisdom may no longer apply.

In fact, much of the conventional wisdom has been based on statistics about how college graduates fare compared to high school graduates on average. However, what happens to any individual may be much better or worse than average.

How much does a college degree improve your chances of getting a job? Although having a college degree doesn’t guarantee a job, the unemployment rate for college graduates is much lower than for those with just a high school diploma. According to an analysis by the Economic Policy Institute, the unemployment rate for young college graduates (ages 21-24) over the past year (April 2011-March 2012) was 9.4%, whereas for young high school graduates, the unemployment rate was more than three times as high – 31.1%.

Those are averages for all recent graduates, though. Whether an individual college grad gets a job depends heavily on their major. A study by the Georgetown University Center on Education and the Workforce found that in 2009-2010, unemployment rates for recent college graduates varied from a high of 13.9% for students majoring in architecture and 11.1% for arts majors to a low of 5.4% for students majoring in health or education. Unemployment rates for engineers and business majors were around 7.5%.

Similarly, whether a high school graduate gets a job depends on how well they did in high school and what kind of job they pursue. There are thousands of highly-paid manufacturing jobs going unfilled today because businesses can’t find workers. Instead of a college degree, most of those jobs require someone with high-school level proficiency in reading and mathematics, a good work ethic, and on-the-job training.

Even though most recent college graduates are employed, many aren’t working in jobs that require a college education or are even related to their degree. A 2011 study by Rutgers University found that 40% of recent college graduates said their first job didn’t actually require a college degree. Less than half (44%) said their education was closely related to their first job, and nearly one third (30%) said there was little or no relationship between their education and their job.

Will you make more money if you get a college degree? U.S. Bureau of Labor Statistics data show that in 2011, the median annual pay in the U.S. for people with a bachelor’s degree (but not a more advanced degree) was $54,756. That’s 65% more than the median annual pay of $33,176 for people with only a high school diploma.

But just because the average college graduate makes significantly more than the average high school graduate doesn’t mean that going to college guarantees a higher salary for everyone. In 2011, 25% of workers with a bachelor’s degree earned less than $38,000 and 10% earned less than $27,000, whereas 25% of the people with a high school diploma but no college degree earned over $48,000 and 10% earned $66,000 or more. In other words, many people with just a high school diploma make more money than many who have a college degree.

Will the need for a college education increase in the future? You’ll often hear people say that “most new jobs in the future will require a college education.” That’s true, but it only applies to truly new jobs, i.e., jobs that have never existed before. 70% of job opportunities in the future will be existing jobs that become available due to retirements, relocations, and promotions, and experts project that most of those replacement jobs will not require a college education.

For example, thousands of manufacturing jobs will be opening up every year as current workers retire. But only 20% of production job openings in the future are expected to require an Associate Degree or higher. Just because they don’t require a college degree doesn’t mean the workers can be dumb; indeed, today’s manufacturing firms need people who can operate sophisticated computerized machinery and implement customized production processes, and that requires far more proficiency in mathematics than was required of the typical assembly line worker in the past. Training is typically provided by the companies themselves or by specialized certificate programs, not by four-year colleges. If we’re going to help industries such as manufacturing and energy grow in our region, we need to encourage smart, hard-working high school graduates to pursue the high-paying jobs they offer.

Does the benefit of college outweigh the cost? Although there are clearly advantages to a college degree, it’s very expensive to get one, and for many students, the results may not justify the financial sacrifices they have to make. High school guidance counselors should help parents and high school students understand that going to college isn’t the only path to a rewarding career and a good income, and make them aware of the many high-paying opportunities available in manufacturing and other industries that need a lot of smart workers, but not necessarily college graduates.

A future post will look at why college is so expensive and whether there are ways to increase the value of higher education relative to its cost.

(A version of this post appeared as the Regional Insights column in the Sunday, June 3, 2012 Pittsburgh Post-Gazette.)

5 Comments:

Anonymous Anonymous said...

If you don't have a degree, a potential employer will say, "Do you have any experience?" If you do have a degree, the potential employer will say, "Yes, I see you have a degree, but do you have any experience?" A college degree raises your debt and gives you knowledge that no one seems to value. I don't see the point in all that effort to get something that is of less value than working for your uncle for a couple years.

8:58 AM  
Anonymous Anonymous said...

Dear Mr. Miller,
You ask if a college education is worth the cost, but why not ask if the right college degree is worth the cost? I believe it is. According to multiple sources, including the Bureau of Labor Statistics, future jobs will be in the STEM fields. Perhaps what we, as Americans, need to do is to encourage more students to pursue degrees in these areas. What are your thoughts?

Regards,
Elizabeth

4:27 PM  
Blogger Harold D. Miller said...

Hi Elizabeth,
Students who finish their degrees from good colleges/universities in majors that employers want will generally feel that their degrees were worth the investment. As noted in my post, unemployment rates for students with engineering degrees are lower than in other areas.
But the fact that it's worth the cost doesn't help much if the student can't afford to pay the cost. I'll be looking at the affordability issue more closely in future posts.
Harold Miller

11:19 AM  
Anonymous Anonymous said...

Hi Harold,

I saw your interesting take on the diminishing benefits of a college education here in America and thought you might find our community's take on this very same topic interesting. http://www.wallstreetoasis.com/blog/a-note-to-my-18-year-old-self-college-is-a-waste-of-time

We are a community of people interested in Wall Street. Please feel free to use as a followup for your readers.

--
Jake Cantrell
Content Manager
WallStreetOasis.com

5:34 AM  
Blogger Jeff Jarder said...

Through Almeda University I finally received credit for all those years of working in the field for a friends company. Almeda University offers life experience degrees which allow you to receive a degree for things you have learned from life experiences. I recommend Almeda if you never went to school for something, but can do it well and want a degree showing your skill.
-Jeff

10:14 AM  

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