Is College Worth it?

Henah: Are you saying it's a grift? I'm surprised. 

Katie: Color me shocked. Welcome back, Rich Girls and Boys, to the Rich Girl Roundup weekly discussion of The Money with Katie Show. I'm your host, Katie Gatti Tassin. And every Friday, my EP, Henah, and I are gonna dig into an interesting, relevant topic based on a listener question. This week's is extremely juicy. Before we dive in, here's a quick message from our sponsors. 

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Katie: Henah, are you excited to talk about the college experience this week? 

Henah: Oh, yeah. My days at Rutgers are some of the best that I ever had, so I wanna see what the question is and how we can debate on it. 

Katie: Roll Tide. All right. This week's question is from Jack. “Is college worth the cost? What level of cost or debt is worth it based on the potential starting job in that industry?” Hmm. Okay. Like I said, loaded and juicy. Henah, initial thoughts? 

Henah: Well, I personally went through this experience, so when I was choosing colleges, my dream, my dream my entire life, was to go to NYU. And then I got in, and I saw how much the tuition was, and I think it amounted to like $220,000 over the four years. And I knew that I wanted to probably go into social impact and nonprofit work, and I was like, well…

Katie: A famously high-earning field. 

Henah: Yes, I knew I was gonna be rich. So I went there. No, I'm kidding. I realized that that probably was not the smartest financial move for my future self, and decided to go to Rutgers, where I truly thought, “Oh, I'll go here for two years and then I'll transfer, and then I'll only have half the debt.” And then I got to Rutgers and I loved every single second of it, and I couldn't have seen myself now going anywhere else. But the question is so relevant to me personally. 

Katie: Yeah. 

Henah: And I have a background in girls’ education; that was my past life. And so I think for me, education is an invaluable tool. But I think the bigger question, and Katie, I think you've talked about this recently, is how did college costs balloon to the size that it is now, where it is so expensive, where $200,000 feels like, I don't know, sometimes a steal for the amount of debt? I have friends who have half a million dollars in debt. 

Katie: Oh my god, I can't even imagine. 

Henah: Yeah, and I mean for them it's necessary, right? Like for their career, for them to go into med school or whatever. But you know, is that something we needed to get to? 

Katie: Right? Absolutely, Henah, capitalism is never wrong. Yeah, I think this is a really interesting topic because in my mind, I kind of conceptualize it like a cost/benefit analysis on a chart, where it started out where… 

Henah: Of course you do. 

Katie: I'm like, in my mind I see a graph. I kind of imagine, like in the early days when college education started to become kind of a prominent or popular choice, it was like college was so cheap and it increased your earning potential by so much that it was such a no-brainer. But then over time, as wages have stagnated and the cost of college has risen and that margin has gotten tighter and tighter, we have gotten to a point where it is more of a serious question to consider, and it's worthwhile to determine: Is there a less expensive option that I could choose? The path that you outlined, I think, is actually a very wise one. Even though you didn't end up doing the original plan: “I'm gonna go to a more affordable institution first and then go to the more expensive one.” 

But the reason that that the costs of college have continued to rise, I think, it's so cyclical with the lending kind of phenomenon where we've seen over time, as federally backed student loans attracted private banks into the industry, and then the private banks realized, “Well, we can't lose, 'cause the government's guaranteeing that these loans are gonna be paid back.” And then the institutions noticed, “Oh, and because that's the case, we can really charge whatever we want and people are gonna pay it, because they have effectively infinite access to federal budgets to pay for the degree.” I mean, it just kind of created this spiral effect. 

Henah: Are you saying it's a grift? I'm surprised. 

Katie: Color me shocked. Anyway, that's kind of how we got here, in a ten-second very oversimplified version. So it is worth considering the level of cost of your debt, and there's a great analysis that Nick Maggiulli does in his book, Just Keep Buying, where he kind of positions it like, think about college like it is an investment. If you can buy a college education that is going to increase your earning potential over time, it is relatively simple to determine the value of the education. So there was this Georgetown University study from 2015 that he cites, where the median annual earnings of high school graduates aged 25 to 29 was $36,000, compared to $61,000 for college graduates in that same age bracket. So if you hold that steady over a 40-year career, it obviously really adds up. And the elephant in the room is probably that earnings vary across majors significantly. And you highlighted a very prescient point, or you were very wise as a teenager to be like, “Hmm, I actually don't think the level of debt that I would have to take on to go to that school would make sense.”

Henah: Are you surprised I ended up where I am now? My brain at 17 was like “Cost basis…” 

Katie: You're in a great job. But there are high school graduates, too, that go on to be exceedingly successful without a college degree. But he does kind of give this equation that basically says, think about what you would be doing if you did not go to college. Like what is the job course that you would pursue without a college education? And then look at the career course that you think you would pursue with that college education, and look at the difference in earnings. And then extrapolate that over a lifetime. Like, you know, multiply by 40 to see if you're gonna have a 40-year career. And then this is the complicated part, where he gets into discount rates and the future value. You wanna take that number, divide it by two. 

Henah: Okay. 

Katie: And then that should tell you, with a discount rate of 4%, per his analysis, over the 40-year career, what that degree is worth today. And what would be a reasonable amount of money to pay for that degree, based on the earning potential that it is going to unlock for you. Of course the future is kind of unknowable, and there's no way to say for sure how much you would earn or what doors it's gonna open for you, but I think if you're looking for a starting point, it's not a bad place.

Henah: Yeah. To your point, it's not so black and white to say a degree in anything is gonna be worth the investment. 

Katie: Right. 

Henah: Also other paths you can consider, to your point: the two-year, four-year college. There's also trade schools. There's also other things that can lead you to really high incomes that don't require such high costs or debt. So I hate having to say this every time, but it is about running the numbers and seeing for yourself, you know, what makes more sense in your lifetime earnings versus what you'll then owe. But we'll see how the student loan forgiveness conversation goes. And maybe that will be the start of kind of renormalizing the price of an education.

Katie: Yeah. Who knows? It is such a hairy, hairy mess. And I do worry about the long-term impacts. You know, you mentioned you have friends that went into medicine that have half a million dollars in loans. I mean, if I were a kid that was interested in going to law school or medical school, and you told me that's how much debt I was gonna have to take out, I probably would've been like, “Mm, not gonna be a doctor then.” You know, I think that there's, it's kind of a dissuading factor for people, especially people that don't have a safety net. 

Henah: Exactly. 

Katie: Like if you have no parental support, are you gonna feel as comfortable taking that risk? I don't know. There's probably a tipping point where either wages are not high enough or the cost of the education is so high that you no longer even need to run the numbers, 'cause you can already…you can look at it point blank and be like, “Well, that's just not worth it.” But I do think that we're still in that position where, depending on where you go and how much debt it requires and what you study, it can still be an amazing investment. It's just not cut and dried. 

Henah: Yeah. I mean, like I said, Rutgers…my time there was the best I ever had, and I would not trade it for anything, but maybe I would trade it…I guess $200,000 in debt if I had gone for the NYU route. But yeah, really great question. 

Katie: Absolutely. Thank you for listening to this week's Rich Girl Roundup. We will be back next Friday with another discussion.