Okay, but really - is a college education worth the cost? | YNAB

Okay, but really - is a college education worth the cost?

Let’s talk about funding our children’s education.

The other day I said I’ll be putting college savings for my kids on the back burner, prioritizing debt elimination and retirement savings instead.

Commenters split their feelings pretty evenly. On one hand you had people complementing my priorities, telling me I’m wise to make sure my wife and I were covered in old age before we worried about paying for our kids’ schooling.

Others felt differently, reminding me our children are our future, it’s parents’ responsibility to provide, and even that I’m selfish for saying they could borrow their way through school if need be.

Rather than have this devolve into a food fight between the sides, let’s make sure we’re clear on the cost and benefit of a college degree before we decide who needs to foot the bill.

In the spirit of full disclosure, I’ll confess to being a dropout. After finishing my coursework in economonics, I left school with a few general education classes between me and a degree. I’ve worn my dropout status as a badge of honor at times, but also had moments where I felt like “I should really get that done.” Today, I’m totally indifferent. I’m providing for my family and (gratefully) earning well above the national median.

But we all know degree holders earn much more than non-degree holders right? Well, yeah. Sort of. We’ll talk about that in a minute.

For now, let’s see if we can get a handle on the current costs of a college education and maybe project out to when my kids will be headed off to school.

I live in Utah, and don’t plan to leave, so let’s look at the estimated annual cost* of three major universities in the area:

School Tuition/Fees Room/Board Books and Supplies Other Expenses Total Est. Cost
Univ. of Utah $7,139 $7,155 $1,090 $5,832 $21,216
Utah State Univ. $5,930 $5,490 $1,090** $5,832** $18,342
Brigham Young Univ. $4,710 $7,228 $972 $4,588 $17,498

*Statistics from CollegeData.com, which gathers data from the schools as well as national surveys of colleges.

**Utah State University didn’t estimate these costs, so I used the data from the U of Utah.

Where does that leave us?

I’m told it’s unrealistic to get a four-year degree in four years but let’s assume my kids will hustle through. Here are the estimated costs of a bachelor’s degree in Utah in 2013 and 2025:

School 2013 4-Year Cost 2025 4-Year Cost*
Univ. of Utah $84,864 $135,870
Utah State Univ. $73,368 $117,464.53
Brigham Young Univ. $69,992 $112,059.45

*Assumes 4% inflation.

If I end up with three kids, and I take an average across the three schools at about $120,000, I’m looking at $360,000 if I want to pay 100% of their educational and living expenses until they graduate.

Now, sure, they can get scholarships, work their way through school, and maybe even live at home. Maybe that cuts the amount I need in half. I’ll need somewhere between $180,000 and $360,000.

If I start saving today and earn 8% per year in the market, I’ll need to set aside $1,500 per month to reach $360,000, or “just” $750 per month to reach $180,000.

You’ve seen my budget. With my income and my debt, there’s no room for $750 to go into a college savings plan right now. But, let’s assume I could set aside those funds. Would I want to? Do I, personally, think it’s the right move?

I’m not sure.

As a dropout, I earned double the national median income my first full year of employment. During my four years on a W-2, I grew from double to quadruple the median income. After switching to self-employment, my income dipped the first year, then I was back in the neighborhood of quadruple the national median until I sold my businesses last year.

See, a college education correlates to higher income, and it’s a strong correlation. But is it causal?

I remember sitting in one of my upper level economics classes and hearing the professor say, “Well, yes, education seems to push income higher, but the education piece of the income equation ends up being less significant than the stochastic piece.”

Stochastic – a word which I just had to look up as a refresher – essentially means random.

In other words, we and the media love to point to education as the primary driver of a person’s income, but it just happens to be the easiest piece to measure. Random elements like luck, parenting, ambition, persistence, and talent are hard to measure but play a bigger role in a person’s ultimate earning power.

I’m not anti-college. Is a society better off if its citizens get more education rather than less? Definitely. Lately I’ve even found myself admiring higher education assistance programs in lefter-leaning countries like Australia (which is saying something for your average Utah-dwelling conservative). I’m just questioning the necessity of an expensive college degree here in the US.

Let’s check out the expected value of a degree, acknowledging that a degree doesn’t guarantee employment – it just improves your chances at securing certain types of employment.

I’ll use 2013 average starting salary data from the National Association of Colleges and Employers (NACE), then adjust it for 2025 (for the sake of consistency between our estimated costs and estimated starting salary).

Career Category 2013 Salary 2025 Salary*
Business $54,234 $87,576.25
Communications $43,145 $69,669.90
Computer Science $59,977 $96,849.96
Education $40,480 $65,366.49
Engineering $62,535 $100,980.58
Health Sciences $49,713 $80,275.80
Humanities and Social Sciences $37,058 $59,840.70
Math and Sciences $42,724 $68,990.07
Average $44,928 $72,549.06

*Assumes 4% annual increase in average starting salaries.

Is the salary worth the cost? Maybe. But my question is about whether the degree is even necessary.

I look at those 2013 starting salaries and I see hourly rates ranging from around $20 per hour on the low end, $30 on the high side.

I wonder whether my kid, or any kid, couldn’t achieve the same hourly rate in a work-to-learn, apprentice style situation coming out of high school. In fact, given the educational resources online, I don’t see why a kid couldn’t come out of high school with a marketable skill worth $20 to $30 per hour (especially in web-related areas like web design, programming, copywriting, and customer service).

I see college as beneficial, not essential. When my kids are around 12 years old, we’ll start to talk seriously about the game of life and career, how college fits into it, and how I think they should go about educating themselves to maximize the value of their experience while minimizing the cost.

When the time comes, my wife and I may decide to help the kids launch their lives after high school, whatever form that help takes. But given my experience and my opinions about how education and career formation will change in the next couple of decades, I don’t feel the need to risk our retirement for the sake of the current educational norm.

I’ll be curious to hear different perspectives on the issue.