The conventional wisdom is that attending college is a good investment. College graduates over a lifetime make, in present value terms, on average about $1 million more than those with high school diplomas. Since the cost of obtaining a degree, even including costs associated with earnings foregone while studying in college (as opposed to working full-time) is vastly less than$1 million, obtaining a college degree is a good investment.
A more correct nuanced view is that obtaining a college degree is a good investment for a significant subset of the young American population. However, for another large segment of the population, it is actually not a viable proposition on strictly economic grounds.
For every 100 students entering a four-year college on a full-time basis, only about 60 obtain a bachelors degree after six (not the advertised four) years. Moreover, according to the Federal Reserve Bank of New York, about 40 % of that 60% who graduate actually become underemployedtaking jobs typically filled by those with lesser education, especially a high school diploma. Thus out of every 100 students who start college full-time, only about 36 typically actually both graduate and get a good job in a timely manner. College is a risky investment.
To be sure, the New York Fed points out some underemployed college graduates actually get pretty decently paying jobs. Welders and long distance truck drivers dont need college degrees but are well paid. But those college grads taking those high paying blue collar jobs likely in most cases could have gotten the jobs, perhaps even at a younger age, if they had not gone to college. It is perhaps a 50-50 proposition that if you enter college you are likely to be in a good job a few years later.
In short, going to college is a speculative investment. To be sure, as the higher education lobby at One DuPont Circle in Washington, D.C., correctly points out, there are other positive benefits of going to college: you have fun, make friends, allegedly become more virtuous citizens, develop leadership skills, etc.
The risky financial nature of going to college has been enhanced in the last few years by a trend reversing previous patterns: the earnings of less skilled and educated workers have been rising much more than that of college educated persons. Wages are rising substantially for relatively unskilled employees in fast food employment, retail trade, and other relatively low-paying professions. Moreover, many of these employers are even providing some assistance in paying for college, allowing some to have their cake and eat it toogo to work but also start to earn a college credential that would enhance long-term employment prospects. I suspect this narrowing of the college/high school earnings differential might be temporary, a function of the current extraordinarily robust labor market, but that is uncertain.
One might suppose in a booming labor market that recent college graduates would be paying down their student loan debt of about $1.5 trillion. Yet they are not. While that debt is tending to stabilize and even fall because of a decline in the number of college students (about one million at the four-year college level during the past decade), that is completely offset by another trend. Existing borrowers increasingly are not paying down their loan balances.
Why? I think it has far more to do with politics than with economics. Virtually every Democratic candidate for president has said he/she will cancel or reduce the student debt burden. Why be a sucker and religiously pay down your debt when, if you wait, that debt might disappear as a result of new public policy, particularly if a Democrat is elected President?
The attitude that debt is okay, we dont need to worry about reducing it pervades our whole society, as demonstrated by the fact that in 2019 the federal government had to borrow $1 trillion just to pay its bills, at a time of under four percent unemployment and positive economic growth. Are we as a nation endangering the future of our progeny with reckless fiscal policy, combined with a similar encouragement of student loan debt?