Is College Affordable Anymore?

The cost of a 4-year college
Public Private
Annual tuition and required fees, 2005-06 $5,351 $19,292
Growth in tuition and fees beyond inflation, 1995-2005 51% 36%
Median debt upon graduation $15,500 $19,400

Source: Department of Education, Spellings Commission report

degree holder earn more

So is it time to NOT go to school? Has the cost of school gone up so high that the pay increase you do get after you get the degree isn’t enough to pay for the loans? Even if you go for free, either with student financial aid, the school pays  or Mom and Dad pay – or some combination, is it worth not working full time for the next 4-6 years until you finish school?

Here is a quote from the article (if you are planning to go to school or planning to send your child, this is a must read):

Consider two childhood friends, Ernie and Bill. Hard workers with helpful families, each saves exactly $16,594 for college. Ernie doesn’t get accepted to a school he likes. Instead, he starts work at 18 and invests his college savings in a mutual fund that tracks the broad stock market.Throughout his life, he makes average yearly pay for a high school graduate with no college, starting at $15,901 after taxes and peaking at $32,538. Each month, he adds to his stock fund 5% of his after-tax income, close to the nation’s current savings rate. It returns 8% a year, typical for stock investors.

Bill has a typical college experience. He gets into a public college and after two years transfers to a private one. He spends $49,286 on tuition and required fees, the average for such a track. I’m not counting room and board, since Bill must pay for his keep whether he goes to college or not. Bill gets average-size grants, adjusted for average probabilities of receiving them, and so pays $34,044 for college.

He leaves school with an average-size student loan and a good interest rate: $17,450 at 5%. The $16,594 he has saved for college, you see, is precisely enough to pay what his loans don’t cover.

But wait there more.

Now your thinking that the college educated individual is going to get paid more so his big debt is not going to be a big deal. But what the articles point is that being that college cost have risen so high that by the time you get of age to retire, you don’t have as much in the bank because you wasn’t working as long as the guy who went to work at 18.

Bill will have higher pay than Ernie his whole life, starting at $23,505 after taxes and peaking at $56,808. Like Ernie, he sets aside 5%. At that rate, it will take him 12 years to pay off his loan. Debt-free at 34, he starts adding to the same index fund as Ernie, making bigger monthly contributions with his higher pay. But when the two reunite at 65 for a retirement party, Ernie will have grown his savings to nearly $1.3 million. Bill will have less than a third of that.

How can that be? College degrees bring higher income, but at today’s cost they can’t make up the savings they consume and the debt they add early in the life of a typical student. While Ernie was busy earning, Bill got stuck under his bill.

Saving Early beats Earning More

So basically because the college educated guy  is so busy paying back his student loans until he is almost 34 years old, he isn’t putting that money into retirement (or anything for that matter). Now for people paying back loans, you know that depending on how many years and the rate, you can end up paying anywhere between1.5 to 3 times what you initially borrowed. That allot of cash going to something you started almost 20 years ago.

All of that would be fine… if college cost didn’t go up so freakin high. The other issue is that you can find yourself unemployed, or sick, or anything and all of a sudden your salary pelmets and your earning the same as the guy who never went (or worst, earning below).

(An interesting book on the subject: Going broke By Degree)

High cost isn’t a coincidence but a necessary outcome. The way to keep a thing valuable is to keep it scarce, so prestigious schools accept few. Government affordability initiatives — grants, loans, tax breaks and the like — puff up buying power against constrained supply, ballooning prices and creating the opposite of affordability. In the 10-year period ending in 2005, increases in tuition and fees outpaced inflation by 36% at private colleges and 51% at public ones.

I think out of everything said, this is what hit the name on the head: degrees are a poor proof of learning. I can surly attest to that. Coming out of school you will get a steep learning curve on how it actually is vs what it was in school. Then you have to learn how to apply why you learned in the real world and that gets tricky. If you don’t work WHILE you are in school in the field you want to go in, you will be lost. luckily i went to a school that understood the difference between theory and reality and tried to bridge that gap, but I have watched many people fall through that gap anyway.

And lets not mention grad school. Most of the people who went had no idea why they were really there. They were going to get a promotion or to secure their current position. Applying what was being learned was secondary. Half the time most people just couldn’t put to word why accounting was important  (or applied) to the job they were doing.

Harvard’s own charter, engrossed on parchment in 1650, says nothing about keeping knowledge scarce. It simply promises, in welcoming language for the time, “the education of the English and Indian youth of this country.” I single out Harvard because it’s iconic, not because it’s more guilty than its peers. How sad that elite schools are reduced to machines that cull the bright from the dull and charge mightily to brand them for success — which these students would have achieved anyhow, because they’re bright. (emphasis mine)


Let get right down to the missing subject point: whether a person goes to school or doesn’t, if they are not driven and willing to do research for the goals that they want in life then they might as well not go to college because it will be a waste of money and time. People need drive. They need some sort of passion for what they want and a willingness to go get it in a well manured way that won’t lead the to be scammed. If you are going to college and have a passion and drive plus willing to do the research it takes to become knowledgeable in what you want to do, it breaks apart the idea of relying on the job market to provide for you. You are driven enough that if the job market doesn’t pay enough, you make a way to get paid more. It could be a better job, or maybe your own business.

College is great. I think everybody should go so that you can better broaden your horizons. Its hard to do that if you do not learn those tools and make them apart of you. That is what college has the ability to do. But don’t go if you are not driven. don’t go if all you are going for is the ability to get a better job. If that is the case, go to the community college or a vocational college or trade school. they offer degrees as well, but you will miss out on the finer details that may help you make good decisions down the road. And believe me when i say this; some of those decisions can be life or death.

If you are driven, focused, willing to do the research to stay on top of your game (and to avoid as many scam artists and other bad deals as you can), then you will be fine. It is probably more work (actually it is more work) than going to school and following the age old go to college and get a better job, but now that is not as true as it used to be anymore. Go to college if you can, but if you can’t or don’t want to, keep in mind that you must have passion and drive for something or you will fall…

Some books on the subject below:

Going Broke by Degree: Why College Costs Too Much (Hardcover)

The dramatic rise in university tuition costs is placing a greater financial burden on millions of college-bound Americans and their families. Yet only a fraction of the additional money colleges are collecting—twenty-one cents on the dollar—goes toward instruction. And, by many measures, colleges are doing a worse job of educating Americans. Why are we spending more—and getting less? In Going Broke by Degree, economist Richard Vedder examines the causes of the college tuition crisis. He warns that exorbitant tuition hikes are not sustainable, and explores ways to reverse this alarming trend.

Tuition Rising: Why College Costs so Much

Unlike businesses, which strive to keep costs at a minimum, universities must spend to make themselves as attractive as possible to their constituents. Ehrenberg, a senior administrator and professor of economics at Cornell University, examines the factors influencing the spiraling tuition costs of the past decade: the need to spend money to have the best facilities, faculties, and learning tools in order to attract the best and brightest students, the need to spend for athletics and other programs to keep alumni support strong, the self-governing nature of university faculty, and the increasing pressure to spend in order to increase ratings in external publications. Observes Ehrenberg, “As long as lengthy lines of highly qualified applicants keep knocking at its door no institution has a strong incentive to unilaterally end the spending race.” This highly readable examination of the American higher education system is an excellent addition to any public or academic library.DMark Bay, Univ. of Houston Lib.
Copyright 2000 Reed Business Information, Inc. –This text refers to the Hardcover edition.

The Student Loan Scam: The Most Oppressive Debt in U.S. History – and How We Can Fight Back (Hardcover)

Declining by Degrees: Higher Education at Risk (Paperback)

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