Will College Be Worth the Investment?
CJScalazettiIn my civilian life I am employed as a consultative sales manager working with my customers to improve their water and energy management efficiencies. The key acronym that is used in my field (or pretty much any sales based industry) is ROI which stands for “Return on Investment.” Any service, technology or idea I present to current and future customers will solely be judged by this value, which states how quickly one can see their investment returned to them in savings.
For instance, if I present a piece of equipment to a customer that costs $200,000 but will save them $100,000 per year in documented fuel, water and electricity usage…that would be a 2 year ROI and very appealing to anyone. Conversely if that same piece of equipment would only save their facility $5,000/year, then that would equal a 40 year ROI that no one would sign off on if they valued their employment.
The key is understanding your customer’s needs and budgets and how your services best fit. In my industry, like the auto industry, you have companies that offer expensive brand new Cadillac and BMW services as well as companies that offer used Kias and Fords at much cheaper costs. Ultimately, both can bring you the same exact bottom line results (my industry: reduced facility energy usage; auto industry: get you from point A to B safely) as long as you have an informed and knowledgeable customer.
This relationship and the concept of ROI came to me immediately as I read this article on Yahoo about the impending college debt bubble about to burst:
This article while discussing the overall big picture of the enormous amount of college debt that a lot of college graduates are facing, details the struggles of one recent graduate. She applied and got accepted to her dream school, Northwestern and graduated with a degree in sociology. She also now has a whopping $200,000 debt that she needs to pay to go along with her degree. While she takes some responsibility in borrowing so much money, she also feels that no one advised her prior to this process of the weight of debt following her for the rest of her life. The concept of college debt being “good debt” is a contradiction when you are this much in the hole.
She started a website to “bring awareness to this issue for many young potential college students” as well as being a portal for people to make donations to help her pay down this debt (probably a larger motive I would imagine). While hers is a very extreme case, I feel it is going to become a major issue for this country’s future in the years to come.
First, I want to address the woman’s situation in this article. I believe that anyone who aspires to higher education should have the ability to do so no matter their financial background. A college degree should not be privilege simply for the rich and elite. That being said, and much like the car analogy earlier, there are many ways to get from point A to B. I am sure many of us would like to cruise downtown in a Cadillac Escalade or Mercedes Benz, however a Honda Civic or Ford Taurus will still get us around without putting one in the poor house.
College is similar. While there are some features and benefits that come with going to a prestigious school like Northwestern, Stanford, or any Ivy League institution…if your budget does not allow it, you can still get a great education at lower profile schools for a much lower cost. Just because you are accepted to a school, does not mean it is the best fit for you, especially if it means you will be in debt for years to come.
Secondly, when this woman chose her major and school, the concept of ROI never factored into her head. While not at all diminishing the importance or relevancy of Sociology, it is not a field that is known for high salaries. People who took out large college loans to attend prestigious schools to pursue fields with high compensation like doctors, lawyers, financial analysts are not suffering. $100K-$150K in student loans is not as insurmountable when you come out of school making 6 figures. Back to the concept of ROI, making $40K/year paying off $200K in college debts will take a lot longer than it will if you are making $100K. Add to that the fact that the woman in the article must pursue a Master’s and PhD for advancement and certification.
Of course, I do not want to come off as stating that the only benefit of college is just to make a good salary, but in today’s society you need to start making smart financial choices earlier and earlier. Unfortunately for this woman, she made some financial mistakes at a very young age that are going to haunt her probably for the rest of her life.
While her case is extreme in the debt amount, it is not uncommon in terms of overall frequency. Experts expect the college loan bubble to be the next financial crisis with about 25% of borrowers defaulting on their loans. This is due to both a weak job market for graduates combined with the issue of students borrowing more than they could possibly afford.
Those that can afford to pay their loans monthly however, find that they have little left over to do anything else. Forget about saving to buy a home, most hope to save enough to move out of their parent’s house. Most predict that this will only get worse as the costs of college continue to rise. With state funding for higher education getting chopped every year, state schools that were once bargains are now starting to creep towards elite private schools. Is it possible that the mantra that “Every American should strive to be college educated” will lead the youth of this nation down the same path that the adage "every American should be a homeowner” led the previous generation to the subprime mortgage crisis?
Is it possible that we overvalued a college education only to devalue it in the eyes of employers? I know a few people that do company hiring that simply look at college education as just a check in the box instead of a valued criteria. My education comes up with potential employers and customers more so to talk about Penn State Football than what my actual schooling was.
There are always going to be industries that adamantly need and require college education and beyond to be employed in that field. Some view college degrees as an easy way to weed out the dozens of applicants who apply for a position. Does that mean one candidate is better suited for a particular job just because they have the means to pay for college?
Should we encourage those who do not desire to be “academic” to pursue the trades when they graduate from High School instead of funneling every high school graduate into college even though most have no clue what they want to do with their lives? I do not have answers to these questions myself, but I feel they are important ones to ask as this country moves forward in this global economy.
Reader Comments (7)
Thoughtful post and I like the running comparison to a successful business model. If the woman from the article probably had possessed a sense of ROI when she made her college choice, there's no doubt she would've selected a more affordable school or a more lucrative career path. But even if she had gone on to be a doctor or lawyer, I wonder if the opportunities would still be there to pay off student loans and still maintain a reasonable comfortable financial status. In the weak economy, it even seems that lawyer jobs are getting cut and healthcare and medical insurance costs threaten medical professionals. That's another post I guess.
To your closing question, I agree wholeheartedly that more kids should be placed on a trade track when they are decidedly unacademic. I think around 6th grade or so, this separation should take place and would benefit all parties involved. The trade school kids would be given a career path and something of real world value to use at a young age without debilitating debt and the college-bound academic kids would be freed from the distractions of students in their classes who don't really want to be there. Once both sets turn 18, then they'll have the maturity to change their career paths if they want to.
Of course, this will probably never happen because it would threaten some people's idea of a free and equal education. If implemented, it would have to be the free choice of the parents or it would invite cries of racial and socio-economic segregation. We'd also have to wonder how many parents would willfully choose to steer their kids away from college in a social climate where a person is often stigmatized for a lack of education. But logically, the parents with a sense of ROI would do better to choose a trade if they were fairly certain their child's student loan debt would not be equal to their future earning potential.
The other secondary issue is the slow shrinking of the middle class and production based jobs. Even if more kids graduated with a trade school education, we don't have a large enough manufacturing sector anymore to accommodate that kind of labor influx. Yes, we will always need plumbers, electricians and the like but how many can we afford when our industrial jobs have been outsourced or tied up in government red tape and labor disputes?
It just goes to show that educational, economic and social issues are all wrapped in together. Socially we need people demanding less entitlement and possessing more creativity and self-reliance, this would lead to more economic opportunity, new jobs, and less debt which would then increase the value we place on education. We expect our education system to just produce the creative, critical, independent thinkers without looking at the other areas and then we wonder why everything seems to be unhinging. But I think we are on the right track by having conversations like these and as your post points out, by being more aware of how much we are really getting for our dollars. I just hope the men and women in Washington will start acting on the concerns relevant to all of their constituents rather than focusing on the few that benefit their special interests.
Education is being held ransom by big box schools and their methods of providing a place to socially grow and learn is antiquated in both economic and social norms for most of America.
The Commuter school gets such a bad rep but this girl could have done much better using common sense instead of the entitlement Nick mentioned. I deserve the best college. Why? What have you done other than follow your teacher's and parent's ideas to get literally paid 50,000 dollars a year by other people's money.
She should start a website and counseling center using her sociology degree (which this episode in her life will probably make her at least aware of the obstacles in the way of the poor and young better than any professor) and go on a college campus tour, including TV, helping kids in the same situation. Try out for the Apprentice or Survivor and write a self help book. She will pay off that loan in no time.
It is wrong what we are doing -- making education so expensive. The risk is not worth the experience of going away to college when there are schools everywhere. We, as parents and community leaders, push responsible loans and alternatives to full time schooling and be examples.
I am sorry to say but Animal House is over except for the very wealthy. For my part, I think my children will be better served by paying for a private education now while it is cheap and they live at home, and just hope that pays off in a scholarship. The schools will be bordering on 75,000 a year by the time my kids get there. That is just wrong and a hell of a cover charge for four years of partying.
Many good points, but some issues with certain details. 1. You say that there are affordable options amongst less prestigious schools, but this isn't really true. Granted, it depends on your definition of prestigious, but take Cabrini College for instance. A small liberal arts school in the Philadelphia suburbs that no one outside the greater Philadelphia area has ever heard of. It costs roughly $40,000 a year to go there! This is not Swarthmore or UPenn or even LaSalle. As you point out, even state schools are insanely expensive for the average middle class attendee. 2) Lawyers and Doctors are not necessarily better off. They must attend school for many more years than the average college graduate, especially doctors, the whole time accruing more debt on top of their undergraduate degree and the whole time not being paid to offset some of it. The 80s movie image of the doctor and lawyer driving in BMWs and Mercedes living in mansions is false. I know many of both and at 35, 40, and even 50, they are living modest lives on account of all their educational debt.
Now, regardless of all that, you are correct that a college degree is certainly not worth the investment or ROI. Even though the myth is propagated with stats saying that college grads have the lowest unemployment rate, 4%, those numbers don't reveal how many of those graduates are working well below their education level, thus stealing jobs from high school graduates and continuing an ugly cycle of unemployment, insurmountable debt, and a declining economy.
While I feel little sympathy for the young girl in the article, I agree she has been mislead, as all children today are with the belief that anyone can go to college. This is not true not just financially, but intellectually as well. Some people are not equipped to go to college, and the reality is that the university system never had any intention of educating all of society. A simple study of this system, with its origins in America being traced backed to Puritan and Catholic roots, would elucidate people to realize higher ed. was meant to be reserved for select members of society. Colleges and Universities explicitly reveal this when they continue to raise tuition and standards year after year. Many of us probably wouldn't be accepted into or afford our alma maters.
The real sham of it all is that, as Nick pointed out, there is no alternative for the masses. America has abandoned its blue collar, middle class society. These kids are delusional too, which being a teacher, is the saddest thing to witness. I have students who are not qualified to work at WaWa, who are 17, failing all their classes, no job, no prospects, and still believe they are going to go to college, "Delaware County" being the most common destination, not realizing they will dwindle away there for 4-7 yrs., barely acquiring enough credits for an associates degree and spending 10-20 thousand dollars, on a credit card, only to become a 24 yr. old out of work community college drop out w/ little to no practical skills and eventually living in a van down by a river!
One solution is to commit your life to service, military or peace corp, and force the federal government to teach you a skill or pay for you education. Otherwise, we're going to have many more websites started by impoverished college grads asking for handouts. I shutter to think of our future.
I used doctors and lawyers as an example as what is traditionall high paying jobs but you are all correct in stating that they are no longer guarantees either. For the purposes of comparison to what is certainly not a high paying profession is why I used the analogy. Those who I know actually see a light at the end of the college debt tunnel and can happily have them paid off before they turn 45! Only a few short years later before they need to start worrying about their kids college tuition as well!
I think you are dead on with the ROI comparison. At the end of the day, going to college has to be an economic decision.
I do have to take issue with your first point that anyone who wants to go to college should be allowed no matter what their income. The intimation here is that this assistance must be provided by the government. Education is a service that you, the consumer, pay for. Just like your analogy to the various makes and models of cars, these different services of education provide varying levels of quality, prestige, and of course, price.
So where then do we draw the line on what services should have "assistance" attached to them by the government. Should we have agencies to give out loans for other services? I think it's a slippery slope.
To your question:
Is it possible that the mantra that “Every American should strive to be college educated” will lead the youth of this nation down the same path that the adage "every American should be a homeowner” led the previous generation to the subprime mortgage crisis?
I say absolutely, and for the same reason. Follow the money. The malinvestment in "education" is the exact same as the malinvestment in real estate. The Federal Reserve blew up the bubble by providing so much cash that college loans were virtually free, and as a lender of last resort to college lenders (the exact same way they are for mortgage lenders), it didn't really matter whether the student would ever be able to pay it all back, the Fed would simply bail them out.
This is also the reason that the price of college (in dollars) has gone up so much to begin with, more dollars chasing the same supply. It's a never ending cycle until the bubble bursts.
Personally, I will only encourage my children to go to college if they are pursuing a hard science, or something that really requires the resources of a university to teach them. And, if they seem to be gifted at a trade, I would encourage them to pursue that.
Good post and good questions to consider.
Andy,
I wrote this post in about 2 hours on Sunday morning between 2 screaming boys under the ago of two's naptimes. Unfortunately, it does not allow me time to really look over what I write and dissect it better. I probably should have clarified that comment you mentioned in more detail. I do not expect the gov't to hand out scholarships or free money to anyone who has a whim to attend. I think that if one truly desires to pursue higher education beyond High School and they do not have all of the money to pay for it, they should be able to borrow a reasonable amount to accomplish this. I do not mean to insinuate that college should be provided by the gov't. There are scholarships, work study's as well as going the Uncle Sam route and doing ROTC and then serving for a few years after you graduate. And one can also start at a community college or local commuter school for a few years and then move on and only do 2 years at a more prestigious school and not got into as much debt. My point was that just because you do not come from a family of means, does not mean you cannot go to college. But that a does not mean yo should feel entitled to go to Harvard or Northwestern just because you simply have the grades either if you do not have a pot to pee in.
Side tangent that i only learned a few months ago: Actually one of the best deals in this country if you want to become a doctor is to enlist with that intention. The Gov't pays for you medical schooling and I bleieve you only have to give 8-10 years, so you could walk way at age 36-40 as a fully licensed doctor without a single debt to owe. It would be the only instance I would recommend going into the military for my boys.
CJ,
Thanks for the clarification. I can definitely identify with the two boys. One of my friends recently blogged that trying to read with kids is like driving while under the influence, but with a lot more noise.
Take care.