Congratulations to our many college graduates and their families! It’s likely that over the last few months you’ve heard your fair share of speeches about how bright the future is. I’m not here to squash all the optimism of the spring’s pomp and circumstance, but the reality is that it’s tough out there. In fact, students who graduated in the middle of the recession are still struggling to make it on their own. We all know young graduates who are living at home, trying to save enough to get a place of their own. And conversations with friends about how they sent their child a plane ticket to come home for the holidays or a check to cover an unexpected expense certainly seem more prevalent that they did a decade or so ago.
In fact, according to research from the University of Arizona that tracked more than 1,000 of its students from when they entered college in 2007 to 2013, half of the graduates who have been out of college for two years rely on their parents or other family members for some financial help.In a press release for the study, Ted Beck, president of the National Endowment for Financial Education, which helped sponsor the research, noted, “These people started college during the boom period, then the market fell apart and they came out of college into a very different environment.”
We can’t underestimate the difficulty or the longer-term ramifications of that transition from economic boom to bust. In fact, whether they rely on their parents completely for support or just need a little help now and then, many graduates responding to the University of Arizona study reported their financial situations have caused them to postpone life goals like getting married, having children or buying a home. Specifically, about 28% of respondents said marriage is not an important goal, while 27% said the same about having children. Another 19% said owning a home isn’t important.
Perhaps even more distressing for parents, many of whom have invested close to a quarter million dollars in their child’s education, is research from the Center for College Affordability and Productivity that found nearly half of our nation’s recent college graduates work jobs that don’t require a degree. Of 41.7 million working college graduates in 2010, about 48 percent work jobs that require less than a bachelor’s degree. Given that in 2010, 39.3 percent of adults between the ages of 25 and 34 had a post-secondary degree, up from 38.8 percent in 2009, the report’s authors wonder if we are overeducating our citizens. After all, they found that the number of college grads will grow by 19 million between 2010 and 2020, while the number of jobs requiring that education is projected to grow by less than 7 million. And yet, student debt has topped $1 trillion!
So, we have to ask, “Is college worth it?”David Leonhardt’s recent article in the New York Times says yes, by a mile. He writes, “In fact, for all the struggles our young college graduates face, a four-year degree has probably never been more valuable. The pay gap between college graduates and everyone else reached a record high last year, according to the new data, which is based on an analysis of Labor Department statistics by the Economic Policy Institute in Washington. Americans with four-year college degrees made 98 percent more an hour on average in 2013 than people without a degree. That’s up from 89 percent five years earlier, 85 percent a decade earlier and 64 percent in the early 1980s.”
Underscoring the simple rules of supply and demand, Leonhardt continues, “If there were more college graduates than the economy needed, the pay gap would shrink. The gap’s recent growth is especially notable because it has come after a rise in the number of college graduates, partly because many people went back to school during the Great Recession. . . The decision not to attend college for fear that it’s a bad deal is among the most economically irrational decisions anybody could make in 2014.”
He then quotes a study by David H. Autor published in the journal Science that argues that the “true cost of a college degree is about negative $500,000.” You read that right. Negative $500,000. Autor arrives at that figure first by calculating the very real cost of tuition and fees, then subtracting that from the lifetime gap between the earnings of college graduates and high school graduates. After adjusting for inflation and the time value of money, he finds the net cost of college is negative $500,000, about double what it was three decades ago.
Accordingly, Leonhardt sums it up this way, “From almost any individual’s perspective, college is a no-brainer. It’s the most reliable ticket to the middle class and beyond.” Of course, as we all know from our own young professional days, a degree alone isn’t a ticket to success. Especially because success is tougher to achieve during difficult economic times, it requires that students focus their education on workforce demand, get those valuable internships, and work hard at that first job, even though it may be far from their dream job.
And, as many parents of recent graduates can corroborate, sometimes success requires, an extra $100 to cover the rent or a plane ticket home.