With average student loan debt reaching an all-time high, it begs the question, is college worth it? Although a crucial factor, a lot more goes into that question than just debt. It is equally important to consider things like lifetime earnings, benefits, ROI, unemployment rates, and quality of life.
Considering the Debt Load
Collectively, student borrowers owe more money than the total U.S. credit card debt. Their expenses on education far exceed that of impulse purchases, vacations, and everyday spending. An average 2016 graduate left school with $37,172 in debt. A medical student would graduate with over $190,000 in student loan debt. A number like this may make college seem like the wrong choice. Do not let it stop you.
Looking at the debt in terms of monthly payments rather than a large sum makes it seem more manageable. Use the Federal Student Aid repayment estimator to calculate monthly payments and the total accumulated interest. Keep in mind that the “average” tool on this page only represents the average federal loan amount. It does not include private loans. Research the potential earnings for your major to determine an average monthly income. Compare that to your loan payment.
Return on Investment
Determining your return on investment will help you answer the question, is college worth it for yourself. Calculating ROI requires three numbers: the amount of money you spend on college, the number of years you want to pay it back in, and the average salary for your desired job. Use the ROI equation below:
ROI = [(Average Salary of Desired Job x Number of Years to Pay off Loans) – Cost of College]/ Cost of College
You can also check out an online list of college ROIs that considers major, school, and alumni salary data. Their research has found that STEM majors generally have a significantly higher ROI and yearly earnings, but softer majors like humanities and art can be competitive. For these majors, it all depends on where you study. Since this data looks at average salaries from a particular school’s alumni, it offers a more accurate depiction of your potential future earnings.
Choosing to study a subject with low return on investment can lead to crippling consequences. Missing or late loan payments affect your credit score. This can put your future purchases and financially stability at risk. It may delay things like home purchasing, retirement investing, and even marriage. Choosing a school with lower tuition will help combat the lower earnings of your major.
Pay Gap Disparity
Another monetary factor to consider is pay gap disparity between the college educated and those with only a high school diploma. Right now, it is at an all-time high and predicted to grow. Data from the Economic Policy Institute in 2015 found that college graduates earn around 56% more than high school grads. It also shows that bachelor’s degree holders made 98% more per hour on average in 2013.
Using this data and others, economics professor David Autor proved that financially, college is worth it. His findings revealed that the true monetary cost of a college diploma is negative $500,000. How is that possible? Autor found that individuals who do not attend college miss out on $500,000 over their lifetime. His calculations take the average cost of a four-year degree into account.
Autor’s findings also make up for the $49,000 that college students miss out on while studying. High school graduates earn that amount during the four years their peers are in college.
Career Prospects and Unemployment
The knowledge college gives you is great, but will it translate to a job? Research shows that those who attend college have more job opportunities than ever before. As of 2017, only 34% of jobs require a high school diploma or less. The remaining 66% belong to those with at least an associate’s degree. In time, that percentage will only increase. Plus, from 2010-2016, 99% of job growth pertained to jobs requiring an associate’s degree and up.
Unemployment rate data for those age 25 and up further reflects the disparity:
Bachelor’s degree holders: 2.5%
Some college or associate’s degree: 3.8%
High school graduate, no college: 5.3%
No high school diploma: 7.7%
A big reason for the lower unemployment rate is the shortage of college graduates and the shortage of high school students prepared for college. Things like automation also contribute to the declining number of jobs for high school graduates.
Quality of Life Factors to Make Note Of
College is not just a numbers game. The worth of a degree goes beyond yearly earnings and ROI. Looking at social and well-being factors, a college degree’s worth becomes even more complicated.
College educated individuals have the best chance at improving their family’s social mobility. Pew Charitable Trusts found that education influences your class, earnings, and social status during your lifetime. Those with bachelor’s degree are much less likely to remain in the bottom income level. Plus a college degree makes those in the lowest income level three times more likely to move to the top. If your family already resides in the middle or top income level, a college degree prevents you from falling into a lower one. Among millennials, 21.8% of those with just a high school degree live in poverty while only 5.8% of college graduates do.
It is not surprising to learn that a college degree leads to higher job satisfaction. College graduates have flexibility in the job market because they are qualified for more jobs. They can choose a job they are passionate about, so their job satisfaction is higher. Having paid time off, job security, higher wages, strong medical insurance, and retirement contributions, make their jobs worth it. Their qualifications and on-the-job training make them more eligible for raises or promotions. They can work toward the goal of a new position instead of feeling stuck.
The number of well-paying jobs with benefits for those with high school degrees or less has not increased from 2010-2016. That is not to say good jobs do not exist, it just means that they are harder to come by. College graduates by far enjoy higher paying jobs and the benefits that come with them. Your investment in a college education will typically result in health, dental, and vision insurance; a retirement plan; paid maternity leave; and paid time off. In fact, 74% of bachelor’s degree holders are offered employee-sponsored health insurance. Only 53.3% of high school diploma earners are. Even if you cannot take full advantage of retirement plans due to debt, you will still use the other benefits.
In the short term, college stress can cause health problems like low self-esteem, digestive disorders, headaches, weight gain, insomnia, depression, and increased blood pressure. In the long run, college graduates live longer on average. Center for Disease Control research discovered that college graduates live around nine years longer than those without a high school diploma and four years longer than high school graduates. Factors like better medical insurance and health awareness play a huge role.
Transition to Adulthood
Transitioning to adulthood means completing school, moving out of your parent’s house, earning financial independence, marrying, and having children. In 2012, more 30-year-olds who never took out loans owned homes as compared to those who did. Fifteen percent of graduates under 30 with loans delay marriage so they can pay their loans off. This suggests that attending college does not negatively affect your transition to adulthood, but the loans you borrow do.
So, Is College Worth It?
The answer to that question highly depends on your situation. If you do not have to borrow money, the research points to the answer “yes.” Your lifetime earnings, benefits, and job satisfaction will far exceed your peers who only have a high school diploma. Plus, you can explore your passion and pursue a career you love without later financial consequences.
The question becomes more complicated for those taking out loans. If that is you, spend time pondering the information above. Debt plays a huge part, but do not let it cloud your judgment. Decide what you want your future career path and family life to look like and let that guide your answer to the question, is college worth it?. If you decide to take the leap, make sure you have a plan on how to pay down your debt as soon as possible. Here are 11 great tips on how to pay off your student loans as fast as possible.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.