Is College a Lousy Investment?

October 1, 2012

For decades, the idea that one must get a college education was ingrained into the mind of every youth. The benefits were clear: an education that would last a lifetime, a better job and higher earning potential than people without a degree. In recent years, there has been debate over whether these supposed benefits of college are still true. Indeed, the extra time and money spent pursuing a college diploma may leave individuals worse off than they were before they set foot on campus, says Megan McArdle, a special correspondent for Newsweek.

  • The costs of college are rising faster than inflation by 3 to 4 percent a year.
  • Between 1992 and 2008, the number of bachelor degrees awarded rose by almost 50 percent.
  • College graduates make 80 percent more than people that only have a high school diploma.
  • However, new graduates have bad job prospects -- about half of all recent graduates are unemployed or in jobs that do not require degrees.

Student loans are widely available and subsidized by the government, which makes it attractive for students to go to school and accept the loans as a means of paying for it. This has allowed universities to increase the costs associated with going to school because there is a very high supply of students that can now afford to go to school.

  • Schools provide high-speed internet, world-class fitness facilities, and other amenities in order to stay competitive with other schools.
  • In addition, there has been a steady rise of administrators to support all types of functions the schools have and an increase in salary for professors.
  • All these costs are then imposed onto the students who pay higher tuition rates.

Despite the higher costs, recent studies show that students are not learning much that would be valuable to them in the job market. Many students go to school thinking all they need is the credential of a degree, thus doing less work during their time in school.

Just as the housing market suffered from people that borrowed money to add "value" to their homes, so too will the market for higher education. On the current path, the student loan bubble will burst, causing chaos. One possible solution that deserves consideration is for the government and employers to advocate more apprentice-style programs. This would allow students to learn the skills necessary in their desired field of work without the unreasonable costs.

Source: Megan McArdle, "Is College a Lousy Investment," Newsweek, September 9, 2012.

 

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