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College Is Worth It If You Keep Debt in Check

June 3, 2016
Loans, Student Loans
College Is Worth It If You Keep Debt in Check
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You expect to enjoy a $50 meal at a fancy Italian restaurant more than a $5 meal at Burger King. The same goes for education: The more college costs, the more value we want from it.

The problem? Prices are rising fast. Between 2002-03 and 2012-13, the annual cost of college for an undergrad at a four-year public university rose 41%, from $12,434 to $17,474, according to the National Center for Education Statistics. The average amount of debt among Class of 2014 graduates was $28,950, compared to $18,550 in 2004, the Institute for College Access and Success reports.

Despite the cost, however, a college degree is the fastest route to steady employment and better pay — especially if you borrow student loans wisely. Here’s why.

College grads are more likely to get jobs

The more education you have, the more likely you are to be employed. In 2012, the unemployment rate for 25- to 34-year-olds with just a high school degree was 11.2%, more than double the rate among those with a bachelor’s degree or higher (4.1%), according to a College Board analysis of U.S. Census Bureau data. A little bit of college improves your chances of getting a job, but not by much: The unemployment rate for those with “some college” in 2012 was 9.6%.

A college degree also protects you during recessions. Between May 2007 and October 2009 — before and during the Great Recession — high school graduates saw an 8.28% increase in unemployment, whereas college graduates saw just a 2.84% increase, according to a 2012 National Bureau of Economic Research paper.

Plus, when you have a job, you get better benefits. A little more than half of those with a high school diploma had employer-provided health insurance in 2012, compared to 76.8% of bachelor’s degree holders and 82.5% of advanced-degree holders, according to a Lumina Foundation issue paper.

College grads make more money

You’ll earn almost $20,000 more per year as a recent graduate with a bachelor’s degree compared to a person with a high school degree, according to the National Center for Education Statistics. That trend has stayed relatively consistent for decades, a Federal Reserve Board of San Francisco report found. Plus, a bachelor’s degree will earn you almost $900,000 more than a high school degree by age 65.

Grads can expect to recover their full investment in college between nine and 17 years after graduating, depending on the cost of tuition. But you must graduate to get these advantages, says Mary Daly, a co-author of the report and a senior vice president and associate director of research at the Federal Reserve Board of San Francisco.

“If you’re going to start a four-year program and drop out at two years or one year, you really almost get no earnings advantage relative to just graduating from high school,” Daly says.

Source: National Center for Education Statistics

The amount you’re likely to earn with a college degree compared to a high school degree also differs depending on your major. Recent college graduates in the arts, humanities, and psychology and social work all earned around 30% more than high school graduates, reports the Georgetown University Center on Education and the Workforce. Recent college grads in business, however, earned 71% more, and those in engineering earned 138% more than high school grads.

Having student loans affects your financial flexibility

It’s clear that a degree is crucial to locking in steady employment and higher earnings. But it’s key to choose a school — and a major — that matches up with how much you’ll make, so you don’t risk borrowing too much in student loans.

“Debt limits your flexibility,” Daly says. If you’re overwhelmed by student loan payments, for instance, you may feel you can’t travel, volunteer or take a low-paying but fulfilling job when you graduate. Without loans, maybe you’d feel more prepared to do a year in AmeriCorps or to move to your dream city.

Consider using this rule of thumb: Choose a college that won’t require you to borrow more than you expect to earn your first year out of school. You can compare annual wages for many occupations on the Bureau of Labor Statistics’ website. Make it an explicit goal to graduate on time, rather than drawing out your program by a year or more, so you don’t pay more than you need to.

“Every additional day you spend there just increases the cost, and it’s going to reduce your return down the road,” says Brett Tushingham, a certified financial planner and managing member at Tushingham Wealth Strategies in Wilmington, North Carolina.

Put another way, college is worth it in nearly all circumstances. But you can reduce the stress of paying for it if you consider carefully the school you go to, the major you choose and how you fund the experience. NerdWallet’s resources can help:

Brianna McGurran is a staff writer at NerdWallet, a personal finance website. Email: bmcgurran@nerdwallet.com. Twitter: @briannamcscribe.