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July 20th, 2010 at 11:08 am
The Daily Discourse: The Cost and Benefit of College Education
Can we look at college education like an investment? In some ways…yes. College education, on average, for public education costs $10,000 per year. For private education, college costs per year, on average, about $27,000. That would be $40,000 or $108,000 for four years…a hefty investment.
The reward, though, is that an average college degree gains a person on average $53,000 in earnings versus $32,500 for just a high school diploma. In a forty year career, if one just earns the average, a person with a college degree will
earn over $2,100,000 in a forty year career. With a high school diploma, the person will earn $1.3 million. A Bachelor’s Degree can help one gain an extra $800,000 in their life for a $100,000 investment. A 700% gain in forty years is a solid 17% annual return. That is an investment that no one should want to resist.
Yet, that number could possibly be an even better return in the future. College tuition has increased at 1,000% since costs in 1978. That rise is well above the rise in CPI and home prices, which have increased at 250% and 300% since that time. When home prices started to break away from CPI, home prices created an awful bubble that popped. Will college education’s bubble pop sometime soon?
As of recent, we have seen a lot of signs that this bubble is starting to pop. First, loans are starting to dry up for the private market. Further, the decline in home values is making home equity loans less possible. Leveraging, further, is not something many want to take on, and endowments are drying up as well. This has been the reason why community colleges, public institutions, and for-profit associate programs are rising in applications…40% in 2009.
Can this break the private bubble?
Another sign that the bubble may decline is that the baby boomer’s baby boom of college-aged students is set to decline. The number of college-aged students is set to decline after 2010. Vermont is set to lose 20% of high school seniors. The Great Plains are set to lose 10%. The decline in demand should also reduce prices.
Yet, institutions continue to increase prices. At some point, the trend has to break. College education, especially on the private side, has always been for the well-heeled, but it may start to lose some of its allure to middle-class. My college, Lake Forest College, a small, private liberal arts institution north of Chicago just increased its base tuition from $40,000 to $42,000 this year. I’m glad I am done there.
We will have to wait and see when this bubble does finally burst…
Good Investing!