Browse By

College: Good News, Bad News

Figure1_CostGrowth_V2_large-squareI have been writing about the shrinking value of a college degree for some time now. It’s a fact that college costs have escalated at a pace FAR in excess of family income, dampening the return on college costs. Of course, if that degree makes the difference in landing a job then that probably beats the alternative. What are some alternatives? Working, going to community college, working and then going to college, staying studying at an state school or a trade school.

Today, a client visited me with some good news: their daughter was accepted to an Ivy League school. What a great accomplishment! She has an eye on education, and is a dedicated and ambitious student. The bad news: tuition + room/board is OVER $50,000 per year. Most parents are financially ill-prepared for that high cost. In this case, the client decided to share the cost and allow their daughter to take out loans to pay the difference between the out-of-state cost of U. of Wisconsin, since it was a benchmark school that was recommended for her area of study. Fortunately, if she gets her degree in the specialty field she has her eye on, the reward should be a high-paying job that would make paying back the loan reasonable.  Unfortunately, in today’s tough job market, many kids are getting common degrees and stuck with a more bleak outlook.

Among recent college graduates, ages 20 to 29, the Bureau of Labor Statistics reports, unemployment stands at 10.9%, more than three points higher than in 2007. A study from the Federal Reserve Bank of New York finds that of the recent college graduates who have managed to find work, more than 40% are in jobs that do not require a college degree; more than 20% are working only part-time; and more than 20% are in low-wage jobs.

They are not alone. A recent report from the National Employment Law Project found that low-wage sectors such as food services and retail trade accounted for only 22% of jobs lost during the Great Recession, but fully 44% of jobs gained since the bottom. Mid-wage jobs accounted for 37% of losses, but only 26% of gains; higher-wage jobs, 41% of losses but only 30% of gains. The wage structure of the entire economy has shifted downward since the Great Recession, and young adults trying to start careers and families have been the principal, but hardly the only, victims.

From WSJ: Welcome to the Well-Educated-Barista Economy

Today’s economic report was very bleak (.1% economic growth) for the country; U.S. Economy Stalls and U.S. Economy Barely Grew were all over newspaper headlines. While most of the U.S. Economy is crawling along (not sure how much slower it can get), I don’t see things turning around anytime soon. Meanwhile, the federal government continues to try and prop up the economy by borrowing money to pay for more and more programs, all the while our National Debt continues to grow.  Despite the Fed pumping, the average family income has been decreasing the past several years.

The future job picture is not bright for many of our children, so make the post high school education choice wisely.  Anything to cut back on the cost of college may be worth looking into for kids that are not in a high-end niche with a lot of future demand.

What’s next? I would like to hear from those that have been through this process with their kids and what they are doing to save money. Are there any parents looking for alternatives?  I can almost see the College of DuPage from my office as it takes over the southern half of Glen Ellyn.  Business is booming for that community college.

Please share below.

Click on these related posts for more information:

Is College Worth it Today? An Alternative Idea

You’re Not Alone – Who Can Afford College Today?  College Calculator

 

3 thoughts on “College: Good News, Bad News”

  1. Mike Pensinger says:

    I think the good news about the ridiculously high cost of college and how it has skyrocketed over the years, as your graph points out, is that level of growth is unsustainable and it has to come back in line. Like most things, college is governed by supply and demand, hopefully sooner rather than later the high price of college will lessen the demand for it. I think it has to if the average middle class family is priced out from sending their children to a 4 year university. This will lead to a fall in demand for college, therefore there will be an oversupply of it and the price of it will have to come down in order for demand to equalize supply. Of course a monkey wrench gets thrown into the free-market system when the government steps in offering college loans that it maybe shouldn’t be offering.

    I think a 529 plan is definitely the route to go for some tax advantaged savings towards college; I avoid the pre-paid tuition plans because I don’t like locking in these incredibly high prices and giving my money to a broke state, too.

    1. Brad Rosley says:

      The main reason college prices have sky rocketed is increased loan availability. Almost anymore can borrow as much as they want now to go to school, and colleges see this as an opportunity to build and expand knowing that people will pay with “phantom” money. In many cases, these loans will for never be be paid and while be magically forgiven after 10-20 years.

      1. Mike Pensinger says:

        I agree. We’ve seen first hand just recently how easy money and money gotten by those that probably shouldn’t have gotten it does to a particular area. I’m talking about housing, and the subsequent crash that was inevitable and sadly needed to bring prices back in line with supply and demand. I don’t think a college price crash will be as hard and as impactful to the economy, however since you don’t have to sell the cost of your college after you’ve paid for it at an inflated price or risk being stuck with something tangible that you can’t afford that you have to pay property taxes on, upkeep and maintenance, utilities, etc..

Leave a Reply

Your email address will not be published. Required fields are marked *