Dr Pepper Social TV Activation from Anisha Veer

Is higher education worth the higher cost?

Trend Analysis

Overview

Traditionally in United States a college degree is a symbol of success and achievement that is considered as a sound investment which safeguards the student from unemployment. However, in the face of 2007 financial crisis and the repercussions it had on the labor market, a college degree does not necessarily imply a remunerative position.  According to the College Board, going to college costs between three and four times as much as it did 20 years ago. A new report out today from the Project on Student Debt shows that average debt for college seniors graduating in 2010 was $25,250, the highest on record (Project on Student Debt, 2010). Although the earnings for bachelor-degree holders stagnated, the average college tuition and average debt figures rose steeply even when adjusted for inflation. In 2011, the nation’s cumulative student debt surpassed the credit card debt and reached the $1trillion mark in early 2012; a first for both events (New York Daily, 2012). After being accepted to a prestigious university, the question becomes how to finance for the education, not whether to attend university or not. It’s not just college students ruminating about the issue; this is also pertinent to 30-yr olds still working to pay off student loans and financially supportive parents trying to assure their children’s place in a difficult future. The value proposition of education is being reconsidered given the current constraints for the millennial generation.

Economic Considerations of Education

1) Record High Student Debts

Promotional literature on college has regarded debt as an “investment in yourself” but the investment is supposed to generate income and pay off the loan. Census data shows that the gap between debt levels and earnings continues to narrow with the growing unemployment. In the last five years, debt has grown steadily, while the median income for people with bachelor's degrees has dropped (Kurtzleben,2011). In Table 1 we see that even after adjusting for inflation average debt for graduating college seniors has risen by approximately 11 percent from 2006 to 2010, while the median earnings for bachelor's degree-holders have fallen by 3 percent.

Table 1: Costs and Benefits of a College Diploma

Year	Average Debt	Average Debt (2010 $)	Median Earnings	Median Earnings (2010 $)	Debt: Earnings (inflation-adjusted)
2006	$21,100	$22,822	$45,221	$48,912	0.47
2007	21,900	23,032	46,805	49,224	0.47
2008	23,200	23,497	47,094	47,696	0.49
2009	24,000	24,394	47,510	48,289	0.51
2010	25,250	25,250	47,422	47,422	0.53

Sources: Project on Student Debt, U.S. Census American Community Surveys (1-year estimates, 2006-2010), Bureau of Labor Statistics CPI Inflation Calculator

That median earnings figure, of course, does not reflect how much a recent graduate earns, as it takes into account all people 25 years and older; those who have spent longer in the workforce are likely to make much more money than those who are less experienced. However, the data suggests that a bachelor's degree is worth less than it used to be, while the cost for such a degree continues to rise. In the current labor market, even earning money is a challenge. Young Americans are having a particularly difficult time finding work. The unemployment rate for young college graduates was 9.1 percent in 2010 (Kurtzleben, 2011).

2) Earnings of College Graduates
The relationship between income and education level is well established. Employers use degrees and grade point averages to screen the large pool of applicants. Having a degree is almost a stipulation for greater professional achievement. Table 2 shows that the difference in earnings of an individual with a high school degree and a bachelor’s degree is almost 70%

Table 2: Average Annual Earnings—Different Levels of Education.

Professional Degree		$109,600
Doctoral Degree		$89,400
Master's Degree		$62,300
Bachelor's Degree		$52,200
Associate's Degree		$38,200
Some College		$36,800
High School Graduate		$30,400
Some High School		$23,400

Source: U.S. Census Bureau, Current Population Surveys, March 1998, 1999, and 2000.

This table by the U.S Census Bureau does not completely illuminate the average annual earning of every college student, as it does not take in the differences in degrees earned. The earning capacity of a fine art major is very different from an engineering major. The Economic Policy Institute’s latest “State of Working America” report released this week stated that although college degree holders earn more than those without them, starting salaries for recent graduates today are lower than they were in 2000 and won’t return to the same level until 2018 (Brownstein, 2012).

3) Rising cost of higher education

The economic recession of 2008 caused a smaller state budget allocation to educational institutions and decreased university donations.  In 2009, four-year public colleges in the U.S. raised annual tuition and fees by an average 6.5% while private universities saw a jump of 4.4%. The higher education system came under fire for its inability to control spending as the consumer price index or CPI, which is used as a measure of inflation, declined 2% (Gordon, 2009).  Figure 1, which is an emailed statement by Senator Tom Harkin in August 2012, shows that tuition has risen 1120% over the past 35 years making college increasingly hard to finance for.

Figure 1: Percent Change of costs in US from 1978-2012 

Source: Bloomberg, Labor Department, August 2012.

College costs have soared 4 times higher than the CPI, and 4.5 times higher than the cost of food (Jamrisko & Kolet, 2012). The rise in college education can be attributed to a host of factors such as increased professor salaries, declining support from state legislatures, heavy administrative inflation and luxurious new facilities (Zimmerman, 2012). Although college education has become increasingly unaffordable for middle class families, it is more price sensitive than other products. There has also been a decreased in teaching loads by tenured faculty members and increase in non-academic services like plush dorms and intercollegiate athletics (McArdle, 2012). Our society is based on the idea that college is vital for economic and social success in life that colleges compete with each other based on facilities rather than tuition. Higher tuition prices could also be the unintended result of federal funding as its help students to pay more for college. This gives colleges the authority to demand higher tuition, as it will be met and feeds into the vicious cycle.

4) Employment rates for graduates

Although most American students and parents believe that education is a sound investment, almost 54 percent of recent college graduates are underemployed or unemployed, even in scientific and technical fields, according to a study conducted for the Associated Press by Northeastern University researchers (Yen, 2012). The Bureau of Labor Statistics tells us that we now have 115,000 janitors, 83,000 bartenders, 323,000 restaurant servers, and 80,000 heavy-duty truck drivers with bachelor’s degrees ­–– a number exceeding that of uniformed personnel in the U.S. Army. Figure 2 shows that there was 54% between 2008 and 2009, when the economy took a dramatic turn for the worse but it remained relatively stable at 9% since then.

Figure 2: Annual Average Unemployment rates

The national unemployment rate for recent bachelor degree holders declined from 13.1% during the peak of 2008 recession and is 8.1% in August 2012 (Bureau of Labor Statistics, 2012). But the optimism should be moderated with caution, as there are wild monthly variations that make the data hard to interpret.

Decrease in Learning: Academically Adrift

The University of Chicago press released a book called Academically Adrift: Limited Learning on College Campuses, which asserts that academia is failing to do its job of teaching students. The book collects data from 2300 student surveys and transcript analysis and tracks the student’s academic gains to show that they have low classwork expectation. Richard Arum and Josipa Roska who conducted the test found that for many students college is more of a credential that they are paying for as opposed to an institution providing learning (McArdle, 2012). The students took the an assessment test which is designed to measure gains in critical thinking, analytic reasoning and other "higher level" skills taught at college at various points before and during their college educations, and the results are not positive:

• 45 percent of students "did not demonstrate any significant improvement in learning" during the first two years of college.
• 36 percent of students "did not demonstrate any significant improvement in learning" over four years of college

This could be attributed to the institutional incentives. Institutions are rewarded for enrollment and retention not quality education (Jaschik, 2011). The book also says that the decline in education is because of the lack of rigor. Many professors report that increases in class size and course loads are leading them to cut down on the ambition of student assignments simply to keep up with grading. After the ordeal that most student go through to finance their education, the benefits of providing a great learning environment and critical thinking skills do not seem to rise.

Alternatives: New solutions to rising tuition costs

Ø  The 20 Under 20 Fellowship: With the burgeoning start up culture, internet pioneer Peter Thiel’s foundation is actually paying students $100,000 to drop out of college and follow their entrepreneurial dream and walk in the footsteps of Mark Zuckerberg, Steve Jobs and Bill Gates (CBS News, 2012). Working may be a lot cheaper than putting students in a classroom especially for ones that don’t enjoy the classroom setting. Apprentice style setting where students can learn from the workplace is crucial for learning (McArdle, 2012).

Ø  FixUC’s 20-year plan: a student organization based at UC Riverside, wants the university to stop charging tuition and instead take 5 percent of students’ yearly salaries for the first 20 years after graduation. It would encourage the university to actually figure out what skills students need to land the higher paying jobs and find innovative ways to maximize earning potential for the students.

Ø  Policy changes: President Obama announced plans to change student loan repayment rules in the United States, altering the existing income-based repayment program and allowing some low-earning new graduates to make even lower monthly payments, and allowing many more to consolidate their loans with lower interest rates. The plan could provide much-needed relief to heavily burdened graduates in an uncertain job market. However, the longer-term problems of high joblessness, stagnant earnings, and inflating debt will take much longer to solve.

Conclusion

The earnings of college degree holders are greater than high school diploma holders and this calculation assumes that human life is a purely economic phenomenon, which it isn’t. Whether a college degree is worth the high tuition, student loans, opportunity cost, and low-paying entry-level positions involved is contingent on whether it maximizes passion, knowledge, and happiness not merely income. This cannot be a simple economic question on whether the returns outweigh the costs; There is no data to measure the happiness of college graduates, so it’s up to the individual to see what’s best for them and make the most out of the opportunities in the given constraints. There are intangible benefits of giving one a greater life perspective that comes along with a college degree.

References

Brownstein, R. (2012, September 15). Education Limit - NationalJournal.com. NationalJournal.com. Retrieved September 19, 2012, from http://www.nationaljournal.com/columns/political-connections/a-college-degree-isn-t-a-ticket-to-success-20120913

Interactive. (2012, May 17).  May 17, 2012 1:34 PM      Print     Text  Billionaire offers college alternative. CBN News. Retrieved September 8, 2012, from  www.cbsnews.com/8301-18560_162-57436424/billionaire-offers-college-alternative/

Curran, S. (2012, January 21). From College to Career in 2012: No Bright Light at the End of the Tunnel . Curran Consulting Group. Retrieved August 8, 2012, from http://curranoncareers.com/college-career-2012/4-yr-unemployment-rate-2008-2011/ 

Donius, B. (2012, June 4). Bill Donius: Is Higher Education Worth the Higher Cost?. Breaking News and Opinion on The Huffington Post. Retrieved September 19, 2012, from http://www.huffingtonpost.com/bill-donius/is-higher-education-worth-cost_b_1568290.html

Gordon, L. (2009, October 19). College costs up in harder times. Los Angeles Times, pp. pp. 13-A.13. .

Is a College Degree Still Worth It?  | Debate Club | US News Opinion. (2012, August 8). U.S News. Retrieved September 8, 2012, from www.usnews.com/debate-club/is-a-college-degree-still-worth-ithttp://

Jamrisko, M., & Kolet, I. (2012, August 15). Cost of College Degree in U.S. Soars 12 Fold: Chart of the Day. Bloomberg. Retrieved September 9, 2012, from www.bloomberg.com/news/2012-08-15/cost-of-college-degree-in-u-s-soars-12-fold-chart-of-the-day.htmlhttp://

Jaschik, S. (2011, January 18). Academically Adrift. Inside Higher Ed. Retrieved September 7, 2012, from  http://www.insidehighered.com/news/2011/01/18/study_finds_large_numbers_of_college_students_don_t_learn_much

Kurtzleben, D. (2011, November 3). Average Student Debt Reaches All-Time High - US News and World Report. US News & World Report | News & Rankings | Best Colleges, Best Hospitals, and more. Retrieved September 19, 2012, from http://www.usnews.com/news/articles/2011/11/03/average-student-debt-reaches-all-time-high

McArdle, M. (2012, September 17). Is College a Lousy Investment. Newsweek, CLX No.12, 24-26.

Powers, K. (n.d.). Janitors With College Degrees and The Higher-Education Bubble - The Daily Beast. The Daily Beast. Retrieved September 17, 2012, from http://www.thedailybeast.com/articles/2012/07/18/janitors-with-college-degrees-and-the-higher-education-bubble.html

Project on Student Debt: State by State Data. (n.d.). Project on Student Debt: Home. Retrieved September 19, 2012, from http://projectonstudentdebt.org/state_by_state-data.php

Student Loans. (2012, September 9). The New York Times. Retrieved September 9, 2012, from topics.nytimes.com/top/reference/timestopics/subjects/s/student_loans/index.htmlhttp://

Yen, H. (2012, April 22). In Weak Job Market, One In Two College Graduates Are Jobless Or Underemployed. Breaking News and Opinion on The Huffington Post. Retrieved September 19, 2012, from http://www.huffingtonpost.com/2012/04/22/job-market-college-graduates_n_1443738.htmlhttp://

Zimmerman, J. (2012, January 31). Are College Students Learning. Los Angeles Times, p. 12.