Is Going to College in the US Worth It?


Everyone has heard the adage: Get an education. We need an educated workforce. You will not get a good job without a college degree. Education is what will make our economy superior. (5) Is education worthwhile if you cannot find a job? Are college graduates finding jobs? The statistics support the idea that college education does increase your odds of finding work, but the rate of joblessness is increasing similar to all of the other employment categories. (10)(11)(12).

What if you could find work but it does not pay enough to make the debt worthwhile? Tuition costs have been rising faster than most prices (1), and since you generally cannot pay off these student loans until after you find work, the interest has more time to compound, making the debt harder to pay off. This effect is even more pronounced in a situation where it takes longer for someone to find work. Any delay in payments will allow the debt burden to swell back up again quickly. Statistics show that graduating from college, and doing it in the expected time are also key factors in paying off the debt.(6) Student loans are not just for people under 25. Two thirds of all borrowers are people over 40.(6) It can take as long as 25 years to pay back student debt depending on the amount borrowed and the terms.(1)

The interest rate on student loans is currently subsidized at 3.4%, but it could be higher depending on who finances the loan. (4) There is a US government bill that may pass that would double this rate to 6.8%.(9) Why is this necessary? At 870 billion dollars and exceeding credit card debt in America, student debt affects many people.(7) Issuing debt is not expensive – it is a contract on a piece of paper. The 3.4% rate is competitive when compared to other interest rates. A 30 year mortgage rate is under 4%. (13) If the issue is risk, wouldn’t doubling the rate increase the risk by making more people default? Already, more than 10% of all student loans have at least one late payment.(7)

There is also the issue of job market volatility. The interest on the debt is a certain loss – but income producing jobs are not certain. The compensation and duration of these jobs is also very uncertain. It is likely to get any better? Nobody knows, but if the job market does improve, will it last for many years – enough time to pay the debt? Is it time to think outside the college/job paradigm and explore other ways of making a living? The numbers suggest that you may not have much to lose. (8)(9)

Sources:

1)      http://www.cnbc.com/id/39911910

2)      http://www.finaid.org/loans/studentloan.phtml

3)      http://www.bls.gov/cpi/cpifacct.htm

4)      http://www.cnbc.com/id/40492487

5)      http://www.cnbc.com/id/40681252

6)      http://www.theatlantic.com/business/archive/2012/03/the-misunderstood-consequences-of-the-student-debt-crisis/254355/

7)      http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

8)      http://rt.com/news/debt-student-loan-gray-737/

9)      http://www.usatoday.com/news/education/story/2012-03-08/student-loans-congress/53420828/1

10)  http://www.ibtimes.com/articles/214426/20110915/unemployment-jobs-economy-college-graduate.htm

11)  http://www.mybudget360.com/does-a-college-degree-protect-your-career-unemployment-rate-for-college-graduates-highest-on-record/

12)  http://www.usatoday.com/money/economy/employment/2010-12-06-collegegrads06_ST_N.htm

13)  http://www.bankrate.com/rates/interest-rates/prime-rate.aspx

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About joetheinvestor
Joe Barbieri has Bachelors degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

2 Responses to Is Going to College in the US Worth It?

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