Is College Still Worth the Debt?

Is College Worth itLast week I wrote a piece on how student loans and credit card debt can’t hurt your chances of efficiently building wealth using a college degree.

To add to that conversation, I’ve brought in Scott Crawford, CEO of Debt Goal to share his thoughts on the value of education, reasons for rising costs, and what you can do about it. Here’s my interview with Scott.

Why do you think we over-invest in college in America? As a follow up, are there certain colleges or degree plans that are more “worth it”?

I do think we over-invest in college. It may be unpopular to say, but it’s the truth. Our secondary education system in the US isn’t rigorous enough to provide adequate signaling of a potential job candidate’s qualifications so many people look to a degree simply for credentialing.

As a result, there are a lot of people who are genuinely not interested in additional schooling who perceive it as necessary to get ahead.

The logical conclusion to this has been diploma mills and for-profit colleges that don’t really provide a good return on your investment. There has been a lot of Congressional scrutiny in recent months about for-profit education where students graduate with tens of thousands in debt but don’t really increase earnings and have poor job placement records.

As part of this debate, there’s been a lot of discussion about education and debt in general with a higher focus on the return for different types of degrees. Some majors have higher starting salaries and students worried about taking on debt should make sure that job opportunities for recent graduates can support their debt loads.

Unfortunately, many students choose to major in fields that really don’t translate into starting salaries that enable graduates to repay debt.

This is reflected in online polls we’ve done at Over half of graduates with debt feel that their earnings don’t justify the amount of debt they’ve taken on and 70% state they’d do things differently to minimize debt if they could do it again.

Why has the cost of college grown so significantly? Are costs expected to continue to rise at these levels?

One of the primary drivers of cost is the fact that education, unlike manufacturing, is purely labor with no substitution of capital investment to drive productivity, so costs will increase faster than for other good.

The surprising thing is that education costs have generally outpaced wage inflation. Education costs have grown so quickly because it’s perceived as necessary in our economy and there are few natural checks to keeping costs low.

Schools compete on diversity of programs and the “exclusivity” of the school. With schools all trying to offer many smaller programs, there are no economies of scale. When students compete to get into schools there’s little incentive for students to shop based on costs.

Even if it seems expensive, both parents and students feel pressured to “stretch” to get the “best” education possible, regardless of the cost.

What are some ways parents and students can reduce the debt they incur because of college?

There are a few basic things parents and students can do:

  • Look carefully at the costs of education and choose a school that fits your budget.
  • Pick a major that will allow you to repay your debts.
  • Make sure you take advantage of scholarships and stipends.
  • Probably the biggest thing you can do is graduate in four years.
  • Work during school.

There are really no magic bullets. I’m a product of public college and feel that my degree was an excellent value that I continue to benefit from. But many recent grads will be struggling for 15-20 years to repay their student loans and have found that they’re putting off buying a home, getting married, or having kids because their student loans are such a burden.

Image by Valerie Everett

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Last Edited: March 16, 2012 @ 3:08 pm
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.