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September 10, 2014

Costs of College

Will College Pay Off? High Costs Call for Smarter Choices

With the financial futures of college-bound students and supportive parents at stake, it may be more important than ever for families to make informed decisions.

The average total cost for one year at a four-year public college surpassed $18,000 in the 2013–2014 academic year, and charges rose to nearly $41,000 at private institutions (costs include tuition, fees, room, and board). A four-year undergraduate education can range from $100,000 to $200,000 per student, which means even affluent families might find it difficult to pay for their children’s college expenses without borrowing money and/or putting their own retirements at risk.1

As the price of college tuition has increased faster than incomes, students have been borrowing more to fill the gap.2 The total amount of U.S. student-loan debt reached $1.2 trillion in 2014, nearly three times the amount in 2004. In fact, about 70% of the class of 2014 graduated with student debt averaging $33,000, up from $18,600 in 2004.3

College loans are relatively easy for students and parents to obtain, but a growing number of defaults suggests that college debt is often more difficult to repay.4 A weak job market has resulted in an increasing number of underemployed graduates, a situation that can be especially tough for those who are mired in debt.5

Bang for the Buck

Soaring costs and diminishing rewards have left many people wondering whether college is worth the time and expense. Still, the earnings gap has continued to widen: Workers with four-year degrees earned nearly twice as much as those without degrees in 2013. According to one study, not going to college could cost someone about $500,000 in lost earnings over a lifetime.6

Life After Debt

When making college decisions, students often review college rankings and data indicating which schools or programs produce the highest-paid graduates. But they might also consider the surprising results of a recent Gallup poll.

Graduates of the top 100 universities (ranked by U.S. News & World Report) were no more likely to say they were thriving in five aspects of well-being than were graduates of other institutions. Only 4% of graduates with $20,000 to $40,000 of college debt said they were “thriving,” compared with 14% of those with no debt.8

One takeaway is that elite universities may not provide as many economic and career advantages as one might assume. In fact, where a person studies may matter less than having the opportunity to earn a degree without racking up a burdensome amount of student debt.

Sources:
1) The College Board, 2013
2) The Wall Street Journal, January 15, 2014
3–4) The Wall Street Journal, June 14, 2014
5, 7) Federal Reserve Bank of New York, 2014
6) The New York Times, May 27, 2014
8) Gallup, 2014

Freeman Owen, Jr - Host of "Safe Money Talk" on CBS Radio The Big Talker 1580AM I want to help you KEEP your retirement money safe.  If you have a student planning to go to college or university, let’s review your payment strategy before you decide to use your retirement money like an ATM machine. Toll Free: 1-866-471-7233 | MD, VA & DC.