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Tuesday, August 11, 2015

Should anyone go hundreds of thousands of dollars in debt for college?

     Recently former Governor O'Malley indicated that he and his wife have over $300,000 of debt from paying for their children's college education.   Of course both of them have opportunities to make enough to pay off that amount of debt but it makes you wonder if going into that much debt is worth it.   For some degrees it might make sense but what about less lucrative degrees?
Average Tuition and Fees and Room and Board in 2014 Dollars, 1974-75 to 2014-15, Selected Years
Tuition and Fees in 2014 Dollars
Academic Year Private Nonprofit Four-Year Five-Year % Change Public Four-Year Five-Year % Change

1974-75 $10,273 $2,469

1979-80 $10,511 2% $2,405 -3%

1984-85 $12,716 21% $2,810 17%

1989-90 $16,591 30% $3,248 16%

1994-95 $18,814 13% $4,343 34%

1999-00 $22,179 18% $4,805 11%

2004-05 $25,215 14% $6,448 34%

2009-10 $28,476 13% $7,825 21%

2014-15 $31,231 10% $9,139 17%

     As the chart above shows the cost of a public college degree has increased almost 400% in the last 30 years  while the chart below shows that the percentage of the population with college degrees has doubled during that same amount of time.

       If you look at the value of anything based on the reality of supply and demand it is clear that the value of a college education has been diminished over the past 30 years just as the cost of that education has exploded.  One result of this oversupply of college graduates is that jobs that once didn't require a college degree now require a degree and over half of college graduates work in jobs that don't require a college degree . Maybe for a growing number of young people getting a college degree might be the worst financial decision they will ever make.


   I wouldn't want to have to call the office to explain this one.


Anonymous said...

"Should anyone go hundreds of thousands of dollars in debt for college?" No, they should not.

Now this is one to which I can really relate. Like the O'Malley family we have four kids, and college has been an issue. I try to never criticize other parents for what they do for their kids' education, because I don't like it when others criticize us for what we did. But it's tough because I think that the O'Malley family is truly whackadoodle here.
First, start saving. We started saving from the time we were expecting our first. This was pre-529 days; the kids got savings bonds, savings accounts and mutual funds. Then 529s after those were created. I have seen no indication that the O'Malley family ever saved a nickel for kids' educations. Given that they made $300,000 per year and had their house paid for by the taxpayers, I don't understand that at all. Yes, they were paying Catholic school tuition, but that works out to about $50,000 per year. What did they do with the other W$250K?
Second, college choices. Our kids got into dream schools that we could not afford. Our son got into a school that was $54K the first year. He got $19K in merit-based scholarships. That left $35K; we budgeted $20K from his savings. So, $15K in loans the first year. The result was he didn't go there. He went to a U of M school, got a merit-based scholarship that saved us a little, graduated with honors and is doing very well in his career.
Lastly, it's important to note that the O'Malley family went $339K in debt to educate TWO of their FOUR. They still have two at home, with no evidence of college savings. You'd have thought that the Governor would have noticed that he was signing bills related to college savings plans, and been interested enough to check into it.

duanestclair said...

I was expecting to get some comments along the lines of "even with the cost college it is still worth it in the long run." Your comments hit some very good points. I do think that there is always some value in a college education, even one in liberal arts (like the one I received) eve if it may not have the earning potential of a degree in petroleum engineering. But somewhere you have to evaluate the debt you are willing to accumulate at a point before you start your first job. Many students have no idea what it is like to pay off a large debt before borrowing the money for college. I feel that colleges are taking advantage of this lack of awareness of young people who find out too late their degree has so little value. And I am not even talking about the for profit colleges that are the biggest scammers.

Anonymous said...

Good points. There are two parts to the "value" of a college education. The first is the intrinsic value of being educated; of having learned things, having learned HOW to learn more things, and having experienced the new life, culture, and environment that you didn't get at home during high school. The second part of the "value" is the boost it gives you to a career in which you will be adequately compensated. A lot of people don't consider both parts of the equation.

Some will only focus on the first part, and those unfortunately are the ones who wind up with $200,000 in student debt and no prospect of paying it off. Yes, they've learned amazing things; and they've learned how to learn more, newer, even more amazing things. But they have no marketable skills.

Some will focus only on the second part. They'll major in chemical engineering or pre-law or business even though they hate it and they may not be too good at it. But at the end of their time in school, they'll have marketable skills. Sadly for them they will not have experienced the first part of the college education; the experience; the learning; the learning how to learn.

It's the people who understand the value in both parts, and who best maximize the total value, who truly benefit the most from college.

I don't know how to assign dollar numbers to the two parts of the value of an education; I suspect it differs for different people. But to be politically incorrect, I don't think it's generally a good idea to spend $200,000 to wind up as a public school teacher, even if your parents are one-percenters who can pay that much for you.