A college education doesn't come cheap, and a lot of the expense these days is funded with debt that can take a decade or more to pay off.
Is going to college really worth it?
I had the opportunity to discuss that topic earlier this week on Moody Radio's MoneyWise Live. To listen, click the play button below — or, if you prefer, scroll down for a transcript. (For more radio appearances by members of the SMI team, visit our Resources page.)
MoneyWise Live, with hosts Rob West and Steve Moore, airs daily at 4:00 p.m. ET/3:00 CT.
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Steve Moore (over opening theme music): Most people can't afford the luxury of college for its own sake. It has to pay for itself to make the dollars-and-cents investment worthwhile. Host Rob West welcomes writer Joseph Slife from Sound Mind Investing. Maximizing a return on your college degree — that's next, right here on Moneywise Live. (theme ends)
Rob, Joseph Slife is an old friend who serves as a writer, researcher at Sound Mind Investing. Usually, we talk with our SMI guests about mutual funds and asset allocation, but today "seeing college as an investment."
Rob West: That's absolutely true, Steve. College is one of the biggest financial investments you can make. Mr. Slife, welcome to Moneywise Live.
Joseph Slife: Well, thank you, Rob and Steve. It's an honor to be with you.
Rob West: All right, Joseph, you've written the cover story for the June SMI newsletter. It's titled, Is a College Education Still Worth the Investment? And I'm sure some of our listeners are thinking, "Why, of course it's worth the investment. You have to go to college to get an education in order to get a good job these days!" Isn't that what most people think?
Joseph Slife: Yeah, Rob, that's an understandable way of thinking. And it's true, there are many jobs that do require a college education — or even beyond college. But that's not the same thing as saying that college is for everybody. In fact, in recent years, some influential educators and economists and researchers, not to mention quite a few parents and students, are really rethinking the whole "college for all" expectation. That's an expectation that has arisen in our culture over the past half-century or so. And some folks are thinking that that maybe "college for all" isn't such a good idea.
And there are several reasons for that. For one thing, there are many good jobs today that don't require a four-year college degree. Secondly, as you well know, the cost of college is getting so high that many families and students simply can't afford it and they end up saddled with a lot of school debt, often debt that hangs around for a decade or even more.
And the third thing — and I observed this, Rob, when I was teaching college for a few years — many young people who are going to college simply aren't college material. And I don't mean that in any kind of pejorative sense. But there are people who are geared toward academic achievement, and then there are people who aren't geared that way. And we really don't do a service to young people who aren't geared toward academics and put them in a college where they often struggle, oftentimes they don't finish college, and then they come out with lots of debt but no degree.
And just to quote, Rob, one influential voice on this topic, former U.S. Education Secretary Bill Bennet — he wrote a book a few years back called Is College Worth It? — and at the very beginning of the book, he says, "Two-thirds of people who go to four-year colleges right out of high school really should be doing something else." Rob, I wasn't a math major, but I know that two-thirds is a pretty big proportion.
Rob West: Well, it sure is. And a lot to talk about on this topic. I'm sure you've raised a number of questions in the minds of our listeners. We've got about a minute before the break. Clearly studies show, Joseph as you know, that college graduates on average earn more than people with only a high school diploma. So maybe you could begin by describing a few of the scenarios when college isn't a good investment and we'll get to as many as we can.
Joseph Slife: Let me deal with the first thing you said. Yes, college graduates on average do earn more than people with only a high school education. Now there are always going to be exceptions to that. There'll be a Steve Jobs or Bill Gates or a Dave Thomas, who founded Wendy's. All those guys had only a high school education. But those are outliers, big outliers.
So if you go to college and you get a degree, you are probably going to earn more over your lifetime than someone who doesn't go and get a degree. And notice that I stressed there "get a degree." One thing that can make college a less good investment is to start but not finish — and many people don't finish. They end up with a lot of debt but no degree.
Steve Moore: With us today as our special guest Joseph Slife. He's a writer, researcher for soundmindinvesting.org. We'll come back and chat some more about college degrees — for your child perhaps. Don't go away.
Rob West: Well, Joseph, a fascinating conversation. Clearly, we think for the majority of people, college is the right choice. But you're raising an important question and that is: Are there circumstances where perhaps taking on especially a degree that saddled with a lot of debt isn't a good investment?
For some folks, and you said clearly those who are going to perhaps not finish, that's not a good investment because you're going to come out without that degree and perhaps as some debt to go along with it. What might be some other scenarios where college isn't a good investment according to your studies?
Joseph Slife: Well, you know, everybody is different — every student is different, every family is different, every college is different. So I don't want to paint with too broad a brush here. But I did come across in my research, a study by the Federal Reserve Bank of New York, that found that students majoring in certain fields tend to perform better in a financial sense — and this is not too surprising. It's the people who major in things like engineering or computers or healthcare, which is a very growing industry — those people tend to earn a higher financial return on their educational investment than folks in some other fields, such as humanities.
But let me hasten to add, Rob, that I think the world needs English majors. I was an English major. I have a son who's really big into philosophy and I think, you know, we need history majors and philosophy majors. Those students who are gifted in those areas should pursue those areas. They may never earn a lot of money, but they're an asset to society at many levels. But simply from a dollars-and-cents standpoint, you need to be realistic about this. Students who are majoring in some kind of science or technical field or in healthcare — those are really the sweet spots for turning an education into an attractive income.
Rob West: Yes, and clearly just as you say, we need English majors and history majors. We need those who are going on to become pastors and working in fields to share the gospel around the world — mission agencies and missionaries. That would be a different category of perhaps than what we're talking about today. Really, we're focusing today on the return-on-investment specifically as it relates to your income. Now, what else lowers the financial return on college?
Joseph Slife: Well, in a word — and this is a word I'm sure you use a lot on your program and it applies to anybody in any major — and that word is borrowing. And as you know, Rob, most students today borrow money to pay for college, just because it's so expensive — and that debt has to be repaid.
Now, just to give you an example of the practical burden of this — and there are probably a lot of people in their 20s and 30s listening to us right now who know exactly what I'm talking about — school debt can claim a significant portion of one's income for a long time. Right now, the standard payout terms set by the U.S. Department of Education is 10 years — and you can pay that off early if you have the money, or you can stretch it beyond 10 years if you don't have the money. But let's just go with 10 years. — that's the standard payout.
As of 2017 — that's the most recent year we have numbers for — as of 2017 the average student who borrowed money for college graduated with a debt load of about $29,000 — 29 to 30. Now, Rob, let's assume a rate of 4.5%. Paying off that $29-or-$30,000 is going to require a payment monthly payment of $300 for a full decade. That's a long time.
Now think about that in the context of two people who get married. Each of them has $29-or-$30,000 in school loans. They also have to pay the rent or a mortgage, maybe a car payment, medical care. They're trying to start a family and so on. And that school debt, between the two of them, can really bring a lot of pressure into the relationship.
And Rob, I found this a statistic from the College Board. It's particularly interesting. When loan repayment amounts are subtracted from gross earnings — in other words, you earn your paycheck, but then you have to pay your debt on the side — when you take out those debt payments, the average college graduate is actually at a net income disadvantage compared to a high school only graduate for more than a decade after completing a bachelor's degree. It takes about 12 years on average in the full-time workforce to earn as much on a cumulative basis as someone who graduated only from high school.
Rob West: Fascinating. Which is why it's so important to begin saving early and to make sure you take on as little debt as possible. In fact, it would certainly be preferable to take on no debt. It also puts a fine point though, Joseph, on this idea that as we take on debt, especially at higher levels on average for Americans, we really need to be seeing a good return on the investment in the form of a good education. Is that what you're finding?
Joseph Slife: Well, I am certain that some students in some places that are getting a good education, but unfortunately, Rob, the research suggests — and probably we could all vouch for this anecdotally as well — the research suggests that the quality of education in the United States is not keeping up with the rising cost. In fact, the quality seems to be heading the other direction. So what we've ended up here with is a situation with higher costs and lower quality on the whole — and that's not very consumer friendly.
But as you know, there's so much money coming into the educational system — a lot of it from federal loans and grants — that there really isn't much incentive to hold down costs or to improve the quality of the product.
Rob West: Well, obviously one way — probably the best way — to get a higher and faster return on your college investment is what we were talking about a moment ago and that is to save and that's why we encourage listeners to borrow as little as possible to save as much as possible. We, of course, like a 529 education savings plan is kind of the preferred vehicle of choice, although there are others —and in some cases, they can make some sense. But, Joseph, as we begin to wrap up here today, what are some other ways to increase the return on college that folks perhaps haven't thought of?
Joseph Slife: Well, Rob, beyond the financial nuts-and-bolts things like you were talking about there — saving as much as possible, borrowing as little as possible — there are things that I would call strategic or "big picture" things. And one of those is to try as a parent talking and praying and reflecting with your teenager or young adult to try to discern the young person's bent. I have a son who is very artistically inclined — I mean, that was obvious from the time he was still a little boy. And later he went to college and he got an art degree. It just fit with who he is.
But sometimes those things aren't so obvious early on and it may take a little while to puzzle through. So one of the things I would suggest, if there's any uncertainty at all about the direction that a young person ought to go with respect to college or work is to simply wait. There's no rule that says you've got to go immediately to college right after you graduate from high school. And, and so perhaps your son or daughter would be better served by taking a year to work and save. Sometimes that's called a "gap year." And during that time, he or she can gain some workplace skills, grow in maturity, really seek the Lord about the next step. One of our sons did a gap year like that and it really helped. He got a job, put some money in the bank, and he was able to go off to school later with some financial resources — which was very nice, I must say.
It's also important to take stock of your student and one of the best ways for parents and students to gain confidence in making educational and vocational decisions is to get a clear picture of the young person's personality and skills and interests and what type of work he or she is most likely to find satisfying.
We used an assessment with a couple of our sons called Career Direct — that's an online assessment now — from Crown Financial Ministries. And reviewing the results of a test like that can really make the "next step" kind of decision much clearer. "I understand who I am" — the student who takes it. Or the parent can say, "I really see you in this test. This suggests that maybe this would be the best pathway forward for you."
Rob West: You were sharing just before the break, some ways where we can really help to ensure that college is a good investment. Of course, you mentioned being very intentional about seeing how God has wired us. Even using an assessment of some kind to prepare your child, your student, for their college years to make sure they're using their time wisely. What other ideas do you have on how we might be more intentional about seeing that to return on investment?
Joseph Slife: Well, Rob, just in the same way that before you invest money in something it's good to know what it is you're investing in, I think it's very important regarding colleges, particularly if you're thinking about going away to college — you know, a residential college somewhere — you really ought to go there ahead of time. Field research is very important. There's nothing quite like a campus visit — and it's a wonderful thing for parents. Some of my best memories as a dad are visits I made to various schools with each of my three sons.
You really can't get a good sense of a place from a brochure or a website. It helps to go there in person to see the facilities, to talk to the professors, if possible. Talk to a few students — that may be even more important. And also, I would suggest, try to judge the spiritual life of the place if it's a Christian school. Or if it's not a Christian school — maybe going to a state university or some other kind of non-Christian institution — find out if there are campus ministries there that are active — if there's a local chapter and so on. And maybe even a visit if they have a meeting going on while you're on campus — you know, visit the chapter meeting.
The last thing in the world you want is for your son or daughter to go off to college somewhere only to find after they get there, after a semester or two, that it just isn't suitable — because they hadn't done the due diligence on the front end. There's likely to be a big emotional cost to that, as well as a financial one. So I would say visit campuses if at all possible ask of questions.
Another way to increase the return on colleges to try to lower your costs. It's that whole cost/benefit arrangement. And you can significantly lower the cost of college if your son or daughter can pass "Advanced Placement" tests. These are pretty common. A lot of high schools offer advanced placement courses to help prepare students for the Advanced Placement test. There's also another test called the CLEP test, the College Level Examination Program tests. Both of those tests, AP and CLEP, are offered by the College Board and students who pass these tests can gain full credit for certain courses at just a fraction of the cost of tuition.
The thing to keep in mind, though, is that not all schools accept credit for all tests. So you need to know ahead of time if the school or schools that you're thinking about will accept credit for those tests.
Rob West: Hmm. Very good. Yeah, I think that's really important. You know, my boys actually are in a school right now where they have dual enrollment and they'll get credit for some of those courses — and you know, that can drastically reduce the cost because you're reducing the number of credit hours that are needed. Joseph, as we begin to wrap up today, what about the spiritual context of this time of discerning and choosing?
Joseph Slife: Yeah. Rob, you certainly don't want to overlook the spiritual or theological context. I mean, this is a time of discerning and choosing and you need to be seeking the Lord about this. And the Scriptures give us a great assurance in this — because they tell us that God has made each of us for a purpose, and that he's fully able to guide us toward fulfilling that purpose. And we have to trust that's true.
You remember Paul wrote this in Philippians 2, "It is God who is working in you, enabling you both to will and to act for his good purpose."
Rob West: I think the bottom line is we need to be thoughtful, prayerful, and really intentional about how we use God's money as it relates to this important and expensive area called college. Joseph, thanks for your time today.
Joseph Slife: Again, it's been an honor, Rob. Thank you.
Steve Moore: And the title of the article we've been discussing: Is a College Education Still Worth the Investment? You'll find it available at soundmindinvesting.org.