I wasn’t going to write about a college funding-related topic this week. To be frank, I wasn’t even going to write a post this weekend. But an article in the Sunday’s edition of the Star Tribune changed my mind…for the better. Postsecondary education: And who — who — will take the road less traveled by? by Mitch Pearlstein got me excited. Excited enough to write a blog post instead of enjoying one of Minnesota’s beautiful summer mornings. Although, I did sit outside of an Excelsior coffee shop with a view of Lake Minnetonka.
The reason for my excitement is the author dared to question whether a four-year college degree is right for everyone. The considerably high number of those not finishing their degree is alarming. Just 58 percent of students who started college in the fall of 2012 had earned any degree six years later, according to the National Student Clearinghouse Research Center. For Gen-Xer’s like me that came out in the 90s, the repercussions of not finishing were usually not devastating. The reason? Wages, the return on the college investment (ROI), were higher. Over the last 20-30 years, wage inflation has not gone up at the same rate as college inflation…not even close.
The force driving kids into four-year degrees that are not right for them has also caused college inflation to increase more than anything else, except maybe healthcare. This dark-Sith-type force is the romanticized dream that is the four-year college experience. It is not that a four-year degree is bad, but it is not right for everyone, regardless of price.
The full Cost of Attendance (COA), or sticker price, for a Minnesota resident at the University of MN Twin Cities is over $28k per year. At a 4% inflation rate, a four-year degree would cost over $119k. Is it worth it if your starting salary was the 2018 national average of around $50k? What if a two-year associate’s degree in industrial design landed you a job for $43k? Before you answer, keep in mind you would have two more years of additional earnings and could invest the cost difference. That is a large compounding
Of course, there are other factors, like income growth potential, and career happiness. But the point is, most people don’t explore all the options. They don’t look at the opportunity cost. All they want is the emotion and pageantry of the Big Ten game day experience.
Purchases based on emotion, especially when related to cultural social stature, are not subjected to reason and analysis. As a result, we most often pay more than we should. In this case, we pay in dollars, time, and mental anguish. The proper path should be analyzing qualitatively whether a four-year degree is right for your child and determine quantitatively whether the ROI is enough to justify the cost. Because we all pray at the four-year degree altar, we most often never question conventional wisdom and do these analyses.
Schools have been the beneficiaries of these blindly written checks. They can charge what they want with almost no consequences. Parents and students just keep coming, regardless of outcomes or ROI. It is why we have so few actually graduating and a $1.6 trillion student loan crisis. If the schools had skin in the game, they might act more like fiduciaries, acting in the student’s long-term best interest, rather than short-term salesman.
The author is right: we need to be more open-minded about routes other than the four-year degree. The parent, the student, and ideally the school, need to look 20-30 years into the future and see what would lead to the best combination of net worth and happiness.
To do this, we need to acknowledge that we have a cultural problem. And that cultural problems are not easily solved because they are engrained in the way we think. We have to have the courage to go against the grain and do what is right for our kids and our future.
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The MNice Investor is for educational purposes only. Investment Advisory Services are offered through Sona Financial LLC (DBA Sona Wealth and Sona Wealth Management), a registered investment adviser authorized to do business in states where registered or otherwise exempt from registration. Nothing discussed during this article/show/episode should be viewed as investment advice. If you have questions pertaining to your specific situation, please consult your own financial professional.