When we get together with friends, we inadvertently exchange stories about our children and based on current events for them and somewhat recent events for us we often talk about college. We touch on the challenges to get started, to manage and thrive in a new environment for high schoolers newly entering one of many schools. From a supporting parent’s point of view, we also compare notes on the cost of supporting the kids both with the core academic curriculum but also with the cost of living. Things do not always go right and as reported in public studies there is a significant number of kids that end up dropping out for a variety of reasons but not a small portion stop their college education for financial reasons. Currently a big topic of public discussion is the significant amount of student loans – a debt that many graduates struggle to pay and that the current government has been seeking to forgive or reduce. Opposite to that the republican project 2025 authors suggest maintaining the obligations for loan holders to pay back – noting that the tax contribution by Americans that go into educational support are an investment into the future that is rightfully expected to be paid back. There is a general belief that a college education is a critical factor for an economically safe and secure life and that the investment even on the individual’s part to pay for tuition and cover the living expenses for the four-year college degree and beyond is indeed a good investment. In some publications more recently this believe is nuanced – highlighting that in certain professions it holds true – think of engineering as an example. But in other areas like arts and social sciences it may no longer hold. Keying off these publications a question comes up: If graduates that do find employment are struggling to pay back student loans – what does that mean? It could be that they live way above their means – which would be a personal choice and not deserving of financial help – in my opinion. But it could be also that they are getting a salary too small to cover the needs of a growing young professional that wants to start and grow a family and pay down the college debt in parallel. What if we turned the question around: What if the cost of education for certain professions is too high? The average salaries for classes of jobs are documented by the department of labor. Of course, an entry level employee may make somewhat less than the average. So, what is reasonable for a pay back and how does that stack up towards the investment made? Here a hypothetical example:
If we assume that it is fair to take 7 years to pay back collage expenses and assume that 5% of the income could go to close college dept (Note: The golden rule of mortgage is 28% of monthly salary for example). Then with a $65K salary – less taxes ~30% (approximation!) we have ~$45K net income – and 5% of that would $2275 payback per year.
So this means a loan to be paid back over the assumed seven years could not be more than ~$16K overall.
Even if we played with the numbers – bouncing up the % or the number of years to pay-back or assume a higher entrance salary for certain fields, it is apparent that such pay back capacity does not jive well with college cost of $30-$50K/year over a four year span. Other financial resources come into the picture – parents and family, work-study programs – still a relationship between investment and return exists – especially since this portion of the education is largely personally funded.
Would that drive thinking and perhaps more visible and public discussion if the cost and content of a four-year bachelor’s program are still aligned in all cases? Are the job requirements and the merit the degree will provide for the employer and the needs of the individual in the form of their salaries matched? Simply speaking – is college too expensive for the degree it delivers in a range of professions? Alternatively, if we value the general education aspect of a college degree – learning how to learn, a broader set of technical and interpersonal skills – then it could be considered a public responsibility – also a discussion in progress. That would mimic the system as exercised in Germany where the tuition for most schools is free and living expenses are carried by the individual or subsidized. In this case the above noted question of people seeking an alternative path towards a profession needs to be considered as well. As an additional reference also professional education in a trade school is free for the participants
In the meantime, probably a good discussion topic for parents with their children to supplement some economic principles into conversation when proceeding towards the college choice.