Is college worth it?
It's a question that's increasingly asked today.
Here's how to think about whether college is worth it for you.
Is College Worth It?
1. According to the Federal Reserve, college is worth it...
Yes, college tuition is rising. Yes, there's student loan debt. However, research from the Federal Reserve says that college is still a good investment. A college degree leads to premium earnings in the labor market compared to those without a college degree. According to the Fed, the average college graduate earns $78,000 per year, compared to $45,000 for those with only a high school diploma, which represents a premium of $33,000.
2. ...But, there are exceptions
There are exceptions to the "college is worth it" rule. According to the Fed, if you graduate at the bottom 25% of your class, drop out of college or take longer than four years to graduate, the benefits of a college degree may not always outweigh the risks.
3. However, it also depends on the type of college
It's hard to generalize the term "college" when there are many different types. For example, there are private colleges, public (state) colleges, community colleges and trade schools, among others.
4. Everyone's situation is unique
It's hard to say whether college is "right for you" because not everyone is the same. We all have our own unique circumstances, financial and otherwise. When you analyze the cost-benefit of going to college, you may find that, for example, trade school makes most financial sense. Or, you may find that college is not the best path for you. Technology companies like Google and Apple now hire people without a college degree. Or you may want to start a business after high school and follow the entrepreneurial path. It's a personal decision as much as a financial one.
This podcast interview addresses this topic in more detail.
5. The tuition and amount of student loan debt matter
The tuition cost and amount of student loan debt that you may incur are essential to answer the question: "Is college worth it?" The tuition at an in-state school may be substantially less than the tuition at the state school in the neighboring state, whose tuition may be different than the private college's tuition down the street. The latest student loan debt statistics show that more than 44 million borrowers collectively owe $1.5 trillion of student loan debt. Think wisely about the amount of student loan debt you plan to incur.
6. Your intended major and profession are especially important
When you start your education, it may be difficult to choose a major and profession immediately. However, your major and intended profession will have a major impact on your earning power and ability to repay student loans. Do you plan to work in corporate law or at a non-profit? Both can be interesting careers, but the pay disparity may make it more challenging to pay off student loans. To the extent possible, consider your major and career plans before borrowing substantial student loan debt.
7. Choose your financial aid wisely
Not all financial aid is created equally. First, maximize grants, which typically do not need to be paid back. Second, maximize scholarships from both your school and outside organizations. Third, evaluate both federal student loans and private student loans. Federal student loans have benefits such as income-driven repayment plans, forbearance and deferment. However, federal student loans have origination fees and don't always have the lowest interest rate. Plus, the federal government does not underwrite student loans, meaning every borrower receives the same interest rate regardless of the underlying credit profile of the borrower.
Private student loans may have lower interests, depending on your (or your co-signer's) credit and income profile. With private student loans, there are typically no origination fees. While private student loans don't offer income-driven repayment plans, those may be less important to you if you're focused on saving money through a lower interest rate and you plan to repay your student loans in the normal course.
8. Have a student loan repayment strategy
Most people wait until they graduate to start thinking about student loan repayment.
Don't be most people.
Develop your student loan repayment strategy when you borrow your student loans. Yes, school may not have started, you may not know your major and you may be unsure of your career path. However, it's never too early to think about your repayment strategy. What types of careers are you targeting? What's your target annual income? Where do you plan to live after graduation? These questions are essential to answer because they will help you determine which college is right for you and how much student loan debt you should borrow.
9. Refinance your student loans as soon as you are eligible
Refinance your student loans. You can get a lower interest rate, consolidate your student loans, get a single monthly payment and pay off your student loans faster. Overall, you can save money and become debt-free. You'll need to be employed or have a job offer, have good credit and income and a low debt-to-income ratio, among other requirements. You can apply online in minutes, and having a qualified co-signer can help get you a lower rate and increase your chances of approval.
Use a student loan refinancing calculator to see how much you can save when you refinance your student loans.
10. Don't do what everyone else does
Make the decision that's right for you and your family. No one else can tell you that, but you.
