How To Get The Best Value From College

The following is a guest post from Neal Frankle. He is a CFP in Los Angeles and also runs the personal finance blog, Wealth Pilgrim.

College can be the key to your future — but that doesn’t necessarily mean that future is going to be bright. If you play it smart, you will surely benefit and it will be one of the best investments you could possibly make. No doubt about it. But if you make the wrong decision about college, you could pay for that mistake for years to come.

Consider the astronomical cost of college. The average college grad ends up in debt to the tune of over $22,000 according to Consumer Reports http://news.consumerreports.org/money/2011/05/2011-college-grads-have-highest-average-debt-to-date.html) And that’s just the average which includes people who attend lower-cost community college. If you attend a four-year school, the cost could easily top $20,000 per year.

That means a student could easily graduate with over $80,000 in debt – just for undergraduate school. Don’t get me wrong, you can find plenty of great jobs without a college degree. But if you do decide to go to college, it’s going to be expensive. Given the huge investment, doesn’t it make sense to graduate with a degree that will help make your debt payment plan easier? Better yet, doesn’t it stand to reason you should study something that allows you to get a degree, get a job and not run up this kind of debt in the first place? This may seem like simple logic to you but most students are ignoring this reality. Let’s take a look at the facts.

Over the last 25 years, the number of students attending college have doubled. But what’s happened to the number of people studying the most sought after professions? That number has remained flat. In fact, more people graduated with degrees in computer science, chemical engineering and math 25 years ago than graduate with those degrees today. On the other hand, the number of people studying visual and performing arts has skyrocketed. More graduated from this department than from all the other disciplines mentioned above combined. And more people are studying psychology – twice as many as compared to 25 years ago – but there are fewer jobs.

Of course there is nothing wrong with studying anything you want –as long as you understand the consequences and are willing to accept them. People with degrees in hard sciences command higher wages. People with degrees in psychology, visual and performing arts etc receive lower compensation. And that’s if you can find work. Because of increased competition and lower demand, people who graduate with a degree in the humanities (half of them) work in jobs that don’t require a degree at all.

Let’s say you graduated in 2009 with a humanities degree and got a job that required a degree. In your first year out of school you earned, on average $21,000. If you found a job that didn’t require a degree (even though you had one) you earned $14,000. The $7,000 “bonus” is nice, but if you graduate with $80,000 in debt, it’s going to take you about 15 years to pay off that debt (with interest).

Bottom line? Study whatever you like. But if you have limited funds, make your investment count. It might be nice to get a degree in English, but you have to ask yourself if that’s the best long term decision for you. What kind of opportunities does such a degree provide you with? What path does it set you on? Can you afford it?

There have been any number of discussions that debate the importance of a high-cost college education. Many of those posts focus on whether or not it’s worthwhile to go to a fancy (expensive) college or not. I believe these arguments miss the boat entirely. The central issue when it comes to college and the value you may or may not derive from it, is a function of what you intend to study and why.

If you want to study Visual Arts or English and (given any debt you may or may not accumulate) can afford to take the jobs that will be available to you, go for it. But don’t complain if after 4 years in undergraduate school you end up working at Starbucks — with $80,000 in student loans.

I am not saying that a humanities degree has no value. I am saying that if you have limited time and money, and you want to build a bright financial future for yourself, think long and hard about the degree you pursue in college. It’s a financial investment. You have the power to make a very good one or a very poor one.