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Paying for College and Getting Your Money's Worth

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According to the Student Loan Marketing Association (more commonly known as Sallie Mae Bank), the average tuition, room and board at a private college comes to $43,921. Public tuition for in-state students at state colleges amounted to $19,548 (about half of which is room and board), with out-of-state students paying an average of $34,031.

How are parents and students finding the cash to afford this expense?
  • Sallie Mae breaks it down as follows: 34% from scholarships and grants that don’t have to be paid back, coming from the college itself or the state or federal government, often based on need and academic performance.
  • Parents typically pay 29% of the total bill (an average of $7,000) out of savings or income, and other family members (think: grandparents) are paying another 5%.
  • The students themselves are paying for 12% of the cost, on average.
  • The rest, roughly 20% of the total, is made up of loans. 
The federal government’s loan program offers up to $5,500 a year for freshmen, $6,500 during the sophomore year, and $7,500 for the junior and senior years. If that doesn’t cover the remaining cost, then students and parents will borrow from private lenders. The average breakdown is students borrowing 13% of their total tuition costs and parents borrowing the other 7%.

Does it matter whether the university is considered an elite? Research has shown showing that the majority of American-born CEO’s of the top 100 of the Fortune 500 companies did not attend elite universities. There also was no pattern in where they went to school. The Platinum Study by Michael Lindsay studied 550 American leaders including 250 top CEO’s, and he found that over two-thirds graduated from non-elite schools. This finding is generally consistent regardless of profession. Many studies have documented that where you go to college has little predictive value for future earnings or levels of well-being.

Is the cost of college worth it? The Federal Reserve Bank of New York recently published a report on the labor market for college graduates. The conclusion, in graphical format, is that younger workers have experienced much higher unemployment rates than their college graduate peers—the figures currently are 9.5% unemployment for all young workers, vs. just 4.2% for recent college graduates. Overall, the unemployment rate for people who have graduated with a 4-year degree is 2.6%, and even during the height of the Great Recession, it never went over 5%.

And income is higher as well. The average worker with a bachelor’s degree earns $43,000, vs. $25,000 for people with a high school diploma only. The highest average incomes are reported for people with pharmacy degrees ($110,000 mid-career average), computer engineering ($100,000), electrical engineering ($95,000), chemical engineering ($94,000), mechanical engineering ($91,000) and aerospace engineering ($90,000).  

Lowest average mid-career incomes: social services ($40,000), early childhood education ($40,000), elementary education ($42,000), special education ($43,000) and general education ($44,000).

Among the lowest unemployment rates: miscellaneous education (1.0%), agriculture (1.8%), construction services (1.8%) and nursing (2.0%).

Yes, there are some themes here, and of course people in every career can fall above or below these averages. Nor does everybody who graduates with a particular degree end up in a career that tracks that degree.  The point is that despite the cost, a college degree does seem to provide significantly better odds of getting a job, and getting paid more for the job you do get.
 
 
To Your Prosperity,

Kevin Kroskey, CFP®, MBA


This article adapted with permission from BobVeres.com
 
Sources: http://money.cnn.com/2016/06/29/pf/college/how-to-pay-for-college/index.html?iid=SF_LN
https://www.newyorkfed.org/research/college-labor-market/college-labor-market_unemployment.html

 

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