Is College Worth It?
Recently, we posted a link on our Facebook page to an article by James Altucher from DailyFinance.com, “Seven Reasons Not to Send Your Kids to College”, in which he proclaims “…the entire college industry is a scam, a self-perpetuating Ponzi scheme that needs to stop now.” You can read the entire article, but the thumbnail sketch is this: take the money you would have spent on a college education and invest it, avoid the debt of college, and get a job or start your own business instead.
At Real Life 101, we teach classes to young adults every day about debt, investing, preparing for higher education, and career guidance, so I felt we were in a good position to weigh in on this issue. Is college worth it?
I don’t think Mr. Altucher has the right answer. I find flaws in the author’s logic which led him to his conclusions. In particular, I disagree with:
Invest the money instead: His math is fine, but I think he starts from a weak position. Many people borrow heavily to pay for their education using subsidized government loans. Sadly, the government won’t give that money to invest instead, so unless you have the $200,000 in cash he mentions, you will have a hard time achieving the same economic results.
Get a job or start a business: With only a high school diploma, young adults will have difficulty getting the types of lucrative employment offers they want. It will also be extremely difficult to attract investors or other supporters to your business venture without demonstrated ability from either education or work experience.
I don’t believe Mr. Altucher’s reduction of a college education into a strictly financial perspective accounts for all the factors necessary to determine its true value. Let me try.
Let’s start with what we know:
College degrees aren’t worth what they used to be: There was a time in which simply possessing a college degree was all that was necessary to guarantee a lucrative and stable career. Those days are gone. It’s not that the degree itself is less valuable, it’s simply the law of supply and demand. As the number of workers in the marketplace with college degrees increased, the uniqueness – and therefore value – of having a degree decreased. As a result, professions with no demonstrable need of higher education are now staffed by college graduates. This drives the need to get more and more education – MBA’s, PhD’s, etc. – to try and separate ourselves in the marketplace, and the cycle continues.
Not all degrees have economic value: A PhD in Ancient Celtic Poetry from Podunk U does not have the same expected rate of return as a PhD in Microbiology from Harvard. There are meaningful financial gains to be had in professions like finance, medicine, engineering, and other academic degrees. People with degrees which provide little financial gain in a particular industry can end up either working in a lower level position in another industry or re-educating themselves with yet another degree.
Marketplaces get more competitive – not less: The value of a degree can change considerably over time, and in today’s technologically accelerated world, the changes will occur more quickly than ever before. This country is changing from a production-oriented economy to a service-oriented economy. You don’t have to look very far into the past to find opportunities, companies, and entire industries which either don’t exist or are no longer economically viable. Remaining competitive and employable through every economic situation is challenging, and your investment in education should make you more flexible and adaptable rather than less.
So what does it all mean? It means I think college can be worth it, but only if you make it worth it. Here are some of the things we tell our students:
Tailor your education and experience to the marketplace: When choosing a college or major, do your homework. Look at the job you think you want, and figure out how to get there. What are the degree requirements? What are the good schools for that degree? Most importantly, what are the trends in that industry? Is the work being outsourced, outmoded by technology, or being absorbed into another discipline? This can keep you from making a major investment of time and money into an education with little long-term value.
It’s not just the degree: What additional skills or experience beyond the degree are in demand? Many employers are actively seeking professionals who speak a second language, have certain technical skills, sales or management experience, and other essential requirements beyond just a degree. Students need to seek out internships, part-time or Summer jobs, and elective courses to satisfy these demands. By acquiring these skills early in their professional careers, young adults make themselves more attractive to their future employer and come closer to getting their dream job.
If it’s worth it, don’t be afraid of debt: If the difference between a great education and an average education (or no education at all) is a student loan, take the loan. If you are using debt to purchase something of value – in this case, a highly-competitive education – you will see more than enough benefit to offset the cost. You will want to limit your debt when pursuing an education from a more “generic” school. Look for ways to make school more affordable (work study, scholarships) or perhaps, go part-time. You will perform better in school if you have a personal stake in your education.
It’s all about the signal: Signaling plays a huge role in our lives. A degree from Harvard is impressive because it is a signal that you are smart enough and disciplined enough to get accepted to and graduate from one of the most prestigious schools in the world. Even a “normal” college degree sends an important signal to employers. It signifies you are serious about your education, willing to devote the time and money necessary to better yourself, and you have the discipline to do the years of work required to graduate. These are valuable and desired characteristics to all employers and extremely hard to demonstrate without a degree.
So is college worth it? I think so, but only if you recognize it as one piece of the puzzle and work to make sure it provides you the maximum possible value. College should be about more than just money. But if you use it to its full advantage, it can be one of the smartest financial decisions you ever make.