12 KIPLINGER’S PERSONAL FINANCE^ 04/
INTERVIEWIS COLLEGE STILL A
GOOD INVESTMENT?
Rising college costs and heavy debt have raised
doubts about the payoff from a college degree.Douglas Webber is an asso-
ciate professor in the econom-
ics department at Temple
University in Philadelphia,
where he focuses on labor
and the economics of higher
education.A recent study from the Federal
Reserve Bank of St. Louis sug-
gested that the value of a col-
lege education has declined.
Is college still worth the cost?
For the average person, col-
lege is still overwhelmingly
a good decision. But like any
investment, there are risks.
The potential negative con-
sequences are greater now
than they were for previous
generations. Not only are
you taking time out from
the labor market, but you’re
paying more to attend col-
lege. Plus, many students are
taking out debt that’s nearly
impossible to discharge in
bankruptcy. But the biggest
risk is not graduating, be-
cause you still have the debt
but don’t have a degree.Do workers who graduate with
a bachelor’s degree still out-
earn workers without a college
degree? Yes, but the price of
attending college has gone
up, so the net return of a
college degree has gone
down a little bit. Still, over
a lifetime, college graduates
earn about $900,000 morerelative to high school grad-
uates. Even if you discount
that figure to take into ac-
count the types of students
who go to college, the “op-
portunity cost” of not being
in the labor force and other
factors, the net value of a
college degree is still about
$350,000 over your lifetime
compared with a high
school degree.How does the major a
student selects affect
the outcome? The
choice of a major may
be the single biggest
financial decision
people will ever
make. If you list ma-
jors from top to bot-
tom based on earn-
ings, it’s roughly a
$2 million differ-
ential. But lifetime
earnings shouldn’t be
in the top three things
that you base your decision
on, in part because job sat-
isfaction matters. There’s
an economic reason, too.
If you compare average
earnings for an Eng-
lish major to, say, an
accounting major’s
earnings, account-
ing looks a lot better.
But frankly, if that person
is not very good at account-
ing, they’ll earn less than
the average accountingAnd there are huge dif-
ferences between federal
student loans and private
student loans. The protec-
tions that exist within the
federal Stafford loan pro-
gram are very strong and
limit the consequences if
you’re unable to repay your
debt. Private student loans
don’t have those protections.
If you’re attending a lower-
cost school, you might be
able to get most or all the
way through college with
only federal loans.What should students and
families consider when choos-
ing a school? Finding a
school that’s right for you
is a very personal decision.
But it’s important to look up
a school’s graduation rate,
average earnings of gradu-
ates and other statistics on
CollegeScorecard.gov to see
if the school does a good job
of getting students through
to graduation and helping
them find good jobs.
Students generally have
a good sense of the value of
different majors. They know
that economics, engineering
and finance are the
high-earning majors
and that music,
humanities and
the liberal arts
are low-earning
majors. But they have
a really poor sense of
the magnitude of the dif-
ference. Students should
make a list of the majors
they’re considering and
then look at the projected
earnings for each. Under-
standing that won’t change
a lot of decisions, but they
should be aware of the labor
market they’ll be going into.
KAITLIN PITSKERPHOTOGRAPH BY JEFF WOJTASZEKmajor. In that case, you may
maximize your earnings po-
tential by choosing English.How does student borrowing
factor into the equation? Debt
is a huge factor. If you take
out a lot of debt for a low-
earning major, the chances
that it’s going to pay off are
less than 50-50. If you’re an
engineering major with a
generous financial aid pack-
age, the chances it will pay
off are virtually 100%.AHEAD