De­bat­ing the worth of col­lege

Ex­perts dis­agree on whether tu­ition costs and stu­dent debt make fi­nan­cial sense

Los Angeles Times - - CALIFORNIA - LARRY GOR­DON larry.gor­don@la­times.com

Many high school se­niors and their par­ents are in the throes of de­cid­ing which col­lege to at­tend and fig­ur­ing out how to pay for it. The big­gest ques­tion for those in the fresh­man ap­pli­cant pool is where to en­roll, not whether to go at all.

Yet be­hind those fam­ilyby-fam­ily dis­cus­sions is a larger eco­nomic de­bate: Does it make fi­nan­cial sense for such a large swath of Amer­i­can so­ci­ety to at­tend col­lege in the first place?

No one ques­tions that col­lege can be a life-chang­ing ex­pe­ri­ence in­tel­lec­tu­ally and so­cially. But in a re­cent flurry of books and stud­ies, econ­o­mists and other ex­perts fo­cus on whether life­long earn­ings are boosted enough by a di­ploma to make all the tu­ition costs and stu­dent debt worth­while.

And in a con­tro­ver­sial chal­lenge, a Sil­i­con Val­ley busi­ness­man is of­fer­ing cov­eted sub­si­dies to bright young peo­ple who drop out or forego col­lege to chase dreams of high-tech in­ven­tions and en­trepreneur­ship.

On the strongly pro­col­lege side, Mary C. Daly, se­nior vice pres­i­dent of the Fed­eral Re­serve Bank of San Fran­cisco, said there is over­whelm­ing ev­i­dence that a bach­e­lor’s de­gree gives peo­ple a fi­nan­cial leg up. Still, she said stu­dents and fam­i­lies should closely com­pare tu­ition costs and grants be­cause the ad­van­tages of a col­lege ed­u­ca­tion take longer to achieve if costs and debt are large.

A re­cent study Daly co-wrote es­ti­mated that col­lege grad­u­ates over the last decades have earned an av­er­age of $20,300 a year more than peo­ple with just a high school ed­u­ca­tion. The re­port, “Does Col­lege Pay?,” said that the pay ad­van­tage in­creases over time, from about $5,000 in the first year af­ter grad­u­a­tion to $28,000 15 years later. Even in the re­ces­sion, col­lege grad­u­ates main­tained higher pay and lower un­em­ploy­ment rates.

“It’s an ir­refutable fact that col­lege gives you a sig­nif­i­cant and per­sis­tent ad­van­tage decade af­ter decade,” Daly said in an in­ter­view.

The study of­fers a cal­cu­la­tor that con­sid­ers such fac­tors as tu­ition, po­ten­tial earn­ings lost while in school and per­sonal sav­ings and spend­ing habits. Un­der its rough for­mula, a grad­u­ate from a rel­a­tively af­ford­able state school, with $9,000 an­nual tu­ition, breaks even on the in­vest­ment and be­gins earn­ing ad­di­tional re­turns in nine years. With a $45,000-a-year tu­ition at a pri­vate uni­ver­sity, the costs won’t be re­couped un­til 17 years af­ter grad­u­a­tion, the re­port said.

Daly urges peo­ple who want to go to col­lege to con­sider less-costly public uni­ver­si­ties if pri­vate ones don’t pro­vide enough grants, or pos­si­bly start at com­mu­nity col­leges and trans­fer to a four-year school. No mat­ter the cam­pus, earn­ing a bach­e­lor’s is the im­por­tant step if you have the ap­ti­tude, she said.

Peter Cap­pelli is more skep­ti­cal in his soon-to-bere­leased book, “Will Col­lege Pay off? A Guide to the Most Im­por­tant Fi­nan­cial De­ci­sion You’ll Ever Make.” A man­age­ment pro­fes­sor at the Uni­ver­sity of Penn­syl­va­nia’s Whar­ton School, he ac­knowl­edges that col­lege grad­u­ates on av­er­age earn more than those who stopped ed­u­ca­tion af­ter high school. Yet, he em­pha­sizes there are huge vari­a­tions and no guar­an­tees the salary ad­van­tage will con­tinue.

Stu­dents with some de­grees land high salaries “but many oth­ers would have been bet­ter off fi­nan­cially by not go­ing at all,” Cap­pelli said.

He at­tributes the pay ad­van­tage mainly to the drop in blue-col­lar wages as man­u­fac­tur­ing jobs moved over­seas, not so much to in­her­ent benefits of a col­lege ed­u­ca­tion. And he notes that many col­lege grad­u­ates take jobs that don’t re­quire diplo­mas and dis­place less well-ed­u­cated peo­ple.

Be­yond look­ing closely at ma­jors and fi­nan­cial aid, Cap­pelli urges fam­i­lies to ex­am­ine schools’ records of grad­u­at­ing stu­dents within four years. If col­leges have bot­tle­necks to cour­ses or re­quire too many classes, costs of ex­tra school years make it more dif­fi­cult for col­lege to pay off, he said.

In one of the most high­pro­file chal­lenges to col­lege at­ten­dance, PayPal co­founder and ven­ture cap­i­tal­ist Peter Thiel funded a San Fran­cisco foun­da­tion that pays young peo­ple $100,000 a year for two years to pur­sue their ideas and busi­ness plans out­side of school.

Since it be­gan in 2011, 84 peo­ple have re­ceived the Thiel Fel­low­ship; 2,800 have ap­plied for next year’s 20 spots.

Thiel is a lib­er­tar­ian who earned an un­der­grad­u­ate and a law de­gree from Stan­ford and later ques­tioned for­mal ed­u­ca­tion’s con­straints. His pro­gram’s phi­los­o­phy is “that there is no one path to suc­cess or a ful­fill­ing ca­reer,” said Michael Gibson, the foun­da­tion’s vice pres­i­dent of grants. “The estab­lish­ment is say­ing if you don’t go to col­lege, your soul is lost and your fu­ture is quite dim. We are say­ing you can have per­fectly ful­fill­ing ca­reers out­side that path.”

Gibson is not ad­vo­cat­ing that most col­lege stu­dents drop out, but he said that the fel­low­ships en­cour­age “di­ver­sity in out­looks and ac­com­plish­ments.”

Although about 10 fel­low­ship alumni have re­turned to school, he said he ex­pects most won’t be­cause they have started their own lu­cra­tive busi­nesses in such fields as high-tech, en­ergy and health­care or are suc­ceed­ing else­where.

Daly of the Fed­eral Re­serve cau­tioned that the rel­a­tively small Thiel project does not dis­prove the mon­e­tary value of a col­lege di­ploma. “There are cer­tainly peo­ple who are not go­ing to need a four-year de­gree to achieve their dream and po­ten­tial,” she said. “But that’s not the av­er­age per­son.”

Ge­naro Molina Los An­ge­les Times

AU­THOR

Peter Cap­pelli ac­knowl­edges that col­lege grads on av­er­age earn more, but ar­gues some peo­ple would be bet­ter off not go­ing.

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