Financial columnist Jack Hough ran an interesting thought experiment comparing two childhood friends, Ernie and Bill. Bill takes out student loans and goes to college after high school, Ernie jumps directly into the labor market. Bill's student loans add up to the average of a college graduate in the United States ($17,450).
Hough then assumes both earn the average wage for someone of their age that has or does not have a college degree. Both also save 5 percent of their income (for Bill, after he pays off his student loans) and put it into the stock market, which earns, on average 8 percent (as it normally has).
Throughout their lives, the college-attending Bill makes more money than Ernie. But income is not the biggest number to track when it comes to financial wellbeing, net worth is. And how does that turn out? Here's how Hough puts it:
"Bill will have higher pay than Ernie his whole life, starting at $23,505 after taxes and peaking at $56,808 [$15,901 and $32,538 respectively for Ernie]. Like Ernie, he sets aside 5%. At that rate, it will take him 12 years to pay off his loan. Debt-free at 34, he starts adding to the same index fund as Ernie, making bigger monthly contributions with his higher pay. But when the two reunite at 65 for a retirement party, Ernie will have grown his savings to nearly $1.3 million. Bill will have less than a third of that."
It's quite amazing indeed what the opportunity cost of waiting four years to start your career (and investing), along with a bunch debt will do to your long term financial prospects.
Don't get me wrong, college is great for some people. This is especially true for those looking to become doctors, attorneys, pharmcists, engineers or the like. Such fields definitely require more education. But not every field requires that, and many people are just not well served by going to college.
Hillary Clinton and others like to say that getting a college degree will earn you "$1 million" because that's how much more the average college graduate makes than the average person who doesn't attend college. But this grossly confuses correlation with causation.
To get an accurate look at whether college really increases a person's earnings, we have to compare two groups of people who did just as well in high school, but one went to college and one didn't. When you compare people who went to college with people who did not, you are comparing people who went to college with both people who chose not to go and people didn't make the cut. For example, sadly about half of the students in Detroit's miserable public schools are functionally illiterate. Most also don't go to college. Is comparing how much money they make in life to a bunch of 4.0 high school students who go to college really a valid comparison?
Even some very smart people sometimes do better without college, as in the cases of Bill Gates and Mark Zuckerberg. Three young entrepreneurs decided to skip out on the Ivy League schools they were accepted to and start FlightCar; a brilliant car rental service that takes advantage of the sharing economy. Instead of getting degrees, these three started a multimillion dollar company.
But even for careers that aren't as flashy as entrepreneurship, there are good options outside of college. For example, many who are more inclined to do physical work would be better severed in one of the trades, such as being a plumber or electrician. Both pay just as well as many careers that require a college degree.
But the real issue is that college is seen by many people and by way too many politicians, as a necessary step for young people to advance when it really only suits some. Yes, for those people college suits, it is very important. But for others, it can just be four (or five, or six, or seven) years of consuming copious amounts of alcohol while be indoctrinated by liberal professors.
This should be especially concerning given that price of college tuition has risen at a rate that far exceeds inflation and student debt is not something that can be eliminated in bankruptcy. Furthermore, by pressuring so many people to go to college-many of whom probably shouldn't-we are making it more and more unlikely that those people will graduate. As US News reports,
"Studies have shown that nonselective colleges graduate, on average, 35 percent of their students, while the most competitive schools graduate 88 percent."
Thus, in nonselective colleges, 65 percent of those who enroll leave without a degree, but often with a large amount of debt to repay.
Again, college is good for some, but not for all. It's about time we stop pretending it was.
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