If you or your child headed off to campus this fall, you’re probably worried about many things. Whether college will be worth the cost should be the least of them.
We’ve read about students who racked up substantial student loan debt with no good job to show for it or high school graduates earning six-figure salaries out of coding boot camps. These people, like Powerball jackpot winners, exist, but they are the rare exceptions, not the rule. They are the statistical outliers who fuel so many alarmist headlines about the value of college.
As President of the Kentucky Council on Postsecondary Education, I review yearly return on investment data for thousands of students. The data tell a different story. A recent piece by the Federal Reserve Bank of St. Louis estimates a college education’s annual rate of return at 13.5% to 35.9%, depending on major. To put that in perspective, a good annual rate of return in the stock market is around 10%.
Ten years after graduation, Kentucky’s typical bachelor’s degree recipient earns about $22,000 more annually than a high school graduate; it’s $16,000 more for an associate degree graduate. Because college graduates tend to be promoted at higher rates, these income disparities widen with time. Over a lifetime, a college graduate will earn about $1 million more than a high school graduate.
For most, college is a safe bet, much safer than pursuing no additional education. There may be upfront costs, but future earnings premiums more than makeup for the initial investment. With that said, you can take steps to ensure you’re not a statistical outlier.
Make sure you persist to degree completion. Students who leave college without a degree accrue debt without the means to afford loan payments. Deferring your student loan delays payments, but interest continues to accrue, leaving you with an even larger balance than when you started.
Try to finish your degree in the least amount of time possible. If pursuing a bachelor’s degree, try to finish in four years. Associate degree students should finish in two. Taking additional semesters or years to complete is an overlooked and perhaps avoidable cost. Taking dual credit courses in high school could shave time off your degree, and those savings add up.
Borrow responsibly. Just under one-half of public university students in Kentucky graduate with debt; because Kentucky offers relatively generous financial aid, the average student loan amount is $12,439 (lower than the national average of $27,000). Try to borrow only what you need and live within your means. If your loan amount is substantially higher than average, consider your major and future earnings potential. It may not make sense to accrue a lot of debt if your chosen profession is not as lucrative.
Keep up to date on the latest student loan developments. The U.S. Department of Education launched the new Saving on a Valuable Education (SAVE) plan in August. This is an income-driven repayment plan, which means if you’re earning $32,800 or less annually, your monthly payment would be $0, and no additional interest accrues. Principal loan balances of $12,000 or less may be forgiven after ten years of payments. This option may not be best for everyone, but it will benefit many.
As a father, I know firsthand that writing tuition checks are painful. But I hope I’ve eased your mind about the soundness of your investment. Beyond the financial benefits, college graduates can access professional networks that help them land jobs. They gain critical thinking skills that employers need. They are better-informed citizens who vote and volunteer at higher rates. Higher education contributes to increased happiness; according to Gallup, 91 percent of college graduates are satisfied with their lives and post-college jobs. That’s a return on investment that can’t be quantified. It’s priceless.
