NCPA - National Center for Policy Analysis


September 24, 2007

Does it pay to go to college?  A degree from an expensive private college, heavily financed with debt, is a high-risk investment that, for many, won't pay, says columnist Scott Burns.

Economist Laurence J. Kotlikoff examined the cost of borrowing to attend a private college.  He found a number of factors reduce the actual economic benefit:

  • When you earn more money, you pay more taxes and you pay at higher rates; one consequence is that the cost of repaying college loans rises because you have to pay more taxes to net enough cash to repay a dollar of original borrowing.
  • When you earn more money, you'll also get less bang for your buck from Social Security; lower-income workers receive a much higher benefit as a percentage of their earnings than higher-income workers because Social Security benefits are more progressive than the income tax.
  • When you are eligible for Medicare, you'll be hit with the same progressivity; starting this year, Medicare premiums are keyed to household income, so you'll pay more for the same benefits if you earn more by getting a college education.
  • Forgoing four years of earning power while in college on borrowed money nearly evens the playing field.

Kotlikoff found that an 18-year-old who had to borrow her way through a private college would still benefit but not by a whole lot.  The hard part is the risk factor.

If college pays for the median-income worker, it may not pay as well for graduates who aren't so fortunate.  If you earn less than the median, the burden of your college loans will weigh very heavily.  They could, in fact, exceed your earnings gain, says Burns.

Source: Scott Burns, "College can be a crapshoot," Dallas Morning News, September 23, 2007.


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