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Sunday, October 23, 2011

The Value of College...Questioned

According to the Department of Education, no more than half of those who started college in 2006 will have a four-year bachelor's degree within six years. So says a May 15, 2010, article in The New York Times. This story makes a compelling case for why an increasingly expensive college education may no longer be the right choice for everyone looking to enter the American work force. "College degrees are simply not necessary for many jobs," notes the article. "Of the 30 jobs projected to grow at the fastest rate over the next decade in the United States, only seven typically require a bachelor’s degree, according to the Bureau of Labor Statistics."

Three days after this article was published, a counter-view went live, and the crux of the critic's point is seen in this chart. The author states, "I think the answer lies in the most straightforward data of all: the relative pay of college graduates and everyone else."

This data arrives via the Bureau of Labor Statistics, and it examines median weekly pay for "the four main educational-attainment groups going back to 1979."

The author sums up, "As you can see, the real pay of college graduates has risen over the past 25 years. The real pay of every other group has dropped."

I'm not arguing against college education, but let me point something out. Yes, this data shows that college graduates are faring better than their non-graduate counterparts. But real weekly income for graduates went from about $950 in 1979 to $1,150 in 2009. This is a 21% increase over 30 years. I went to the US Inflation Calculator and learned that cost $100 in 1979 would cost $295.51 in 2009, an inflation rate change of 195.5%. It's fair to say that the year-over-year benefits of a bachelor's degree pale against the rising tide of general cost increases.

In 1979, the cost of a year of undergraduate education at the University of Pennsylvania was $5,270 for tuition and general fees. (Let's ignore room, board, etc.) Roundly speaking, that's $21,000 for a four-year education. If I had invested $21,000 into the S&P 500 index fund in 1983, it would have grown to $154,938 by the end of 2009, according to the stock market CAGR calculator at Moneychimp. That's adjusted for inflation. The unadjusted total would be $341,250.

Again, I'm not suggesting that all of the money poured into a conventional education might be better poured into long-term investments. But this certainly provides a different look at return on investment and might give some people additional pause to wonder if the current cost of a degree will truly be worthwhile. In some fields, the answer probably remains a resounding affirmative. But if I had my English degree to do all over again, I'd just pocket the cash, sink it into an index fund, and be better off for it. On-the-job experience and hard work has proven far more beneficial.

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