I have one child currently in college, and I personally know many children who are currently Seniors in High School. Those who are Seniors currently have either already heard from the colleges to which they applied, or they are about to hear in the next couple of weeks. Anxious but exciting times for those Seniors and their parents.
Michael Kitces is a well-known CFP Professional and prolific blogger. Kitces recently posted an article titled, “Why the Best ROI On College May Be For Those Who Would Have Been Successful Anyway”.
Hopefully, you can read the linked article. Even if you can’t, I will summarize and comment on what it says.
Why go to college? The Kitces article says there are 2 good reasons:
- The “Human Capital” rationale is that children go to college to develop their own personal skills and knowledge.
- The “Signaling” rationale is that completing college signals to employers that the student has the skills to compete in the real world, the perseverance to complete the degree program, and the conformity to work through the bureaucracy therein.
These two reasons are not mutually exclusive and there are elements of truth to both.
Is College Worth the Cost?
It is no secret that the cost of college has exploded. One chart in the Kitces article shows that the cost of college has increased by about 1100% since 1980, whereas CPI has increased by about 200%. If you pay retail, it is easy to spend over $60,000 per year at a private college.
The Kitces article shows that college is worth the investment under some criteria but not in all cases. The following is a summary taken from the article:
- Strictly from an ROI standpoint, private college is likely not worth the investment if the student otherwise can go to a top in-state university. The bump in salary you get from the diploma makes more sense the less you paid for the diploma.
- The worst thing to do is to start college but drop out before completing the degree. Completing “some college” but not getting the diploma does not correspond to a bump in salary post-completion.
- The article segregates students into 4 basic abilities: Excellent, Good, Fair and Poor. There are different likely outcomes for each.
- Excellent students – those who are likely to complete their Bachelor’s and possibly their Master’s degree – earn the best ROI from college. They are the ablest.
- Good students earn a lower ROI, and on down the line to Poor students, who the article says should not go to college.
- The most important determinant of low ROI, according to the article, is the cost of attending some college but dropping out prior to getting the diploma. The less “excellent” the student is, the more likely they will drop out.
- Poor and even Fair students should opt for apprenticeships or trade schools, or perhaps the military, instead of college. Parents should not force poor students to go to college.
- The blanket statement that “College graduates earn x% more than high school graduates” is not relevant because the pool of kids who are going to college are likely more skilled and abler than are the pool of kids who aren’t going to college.
- A student’s Major in college is important – engineers make more than art history majors – but not as important as just finishing and getting the diploma.
I believe a college education has become far too expensive, prohibitively so for many families. Yet, there seems to be even more pressure, social and otherwise, on kids to go to the “best” college they can, public or private. I think the social pressure needs to work in exactly the opposite direction. Trade school and apprentice programs – learning to work with one’s hands – needs to be elevated and more esteemed in our economy. There is a labor shortage in the current economy that is most acute at the trade level. Some kids aren’t cut out to go to college. If your’s is one of them, don’t send them to college. Moreover, the path of going to community college and then on to state university also needs to be elevated. Employers that are currently “selective” as to the colleges from which they recruit need to be less so because a lot of Excellent students can’t afford the “selective” colleges. Lastly, as a sports fan, all of this is not good news for the NCAA, because so many “student-athletes” aren’t at college for the “student” aspect of it. LeBron James just made headlines for calling the NCAA “corrupt”, and I think a lot of the corruption stems from trying to maintain the “student-athlete” facade against the reality that a lot of the athletes were never meant to be students. “One and Done” is a joke.