The value of a college degree vs. the debt it takes to earn it

The cost of a college education and the debt that many students are saddled with when they get out of school are the biggest issues in higher education. Here is a look at the value of a degree versus the debt it takes to get it, by Katherine Pilnick, who writes and blogs about personal financial well-being and issues that influence it for Debt.org, which calls itself America’s Debt Help Organization.

By Katherine Pilnick

 Higher education becomes more expensive each and every year. Tuition costs rise twice as fast as typical inflation, making college less affordable for average Americans with every passing year. Faced with such high costs and near-universal financial hardship, students can find it difficult to determine whether college is actually worth the price tag.

It’s important, then, to look at the expected value of one’s degree versus the estimated amount of debt the student will incur. Both the value and the cost widely differ based on a number of factors, such as whether a student plans to attend a public or private school, whether the student plans to live on campus and what the student plans to do after graduation.

Viewing the problem in its simplest terms, those with bachelor’s degrees earn an average of nearly $1 million more over their lifetimes than those with only high school diplomas. An individual with a bachelor’s degree can expect to earn $2.27 million over a lifetime, while a high school graduate typically earns only $1.30 million. Those with some college earn only slightly more than those with no college at all, with total earnings averaging $1.55 million.

This means a college degree is worth, on average, $970,000.

Of course, the problem is not so black and white. Those who go into high-paying jobs will find more value to their degrees. In contrast, the growing number of college graduates who cannot find work may struggle to find any value in their education. This is especially true for those individuals who owe thousands of dollars in student loans.

High amounts of student debt – and the corresponding stress – reasonably detract from the inherent value of a college education. Before committing to their dream schools, students should get an idea of how much debt they’re willing to accept.

Tuition was an average of $28,500 at private schools in 2011, with students typically paying only $12,970. The other 54 percent was covered with funding such as scholarships, federal grants and financial aid. This gives a general starting point for students to estimate how much they’re expected to pay, not including room and board or fees such as costs for textbooks and transportation.

Most experts agree that one’s total education debt should be less than one’s expected income the year after graduation. For example, assume a student can pay for room, board and fees but takes out $13,000 in loans each year to pay for tuition at a private school. That’s $52,000 in debt for four years of school. Experts suggest that taking on that amount of debt is wise only if the student expects a starting salary of $52,000 or greater.

As with other estimates, this advice should be taken with a grain of salt, as each student’s needs and abilities vary. Perhaps one student’s parents are able to chip in, while another student is willing to hold jobs throughout college. Public universities provide a cheaper option for many students, as well.

For the average American student, however, experts say to err on the side of caution. Student loans are almost never forgiven during debt-relief methods such as bankruptcy, so they stay with debtors until they are repaid in full.

If students can’t afford the college of their choice, it doesn’t mean they should skip out on higher education altogether. They should consider options like attending a community college for two years before transferring to their dream school. They will earn the same degree but at a lower sticker price.

While a college education is valuable, it’s important to weigh its long-term worth against its immediate cost. There are always options for those who want a good education.

Valerie Strauss covers education and runs The Answer Sheet blog.
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Valerie Strauss | October 31, 2012