When times are tough, people get back to reality and again begin debating the value and merit of ideas and institutions and boy, are people starting to debate whether higher education in its present form is still worthwhile. Given the cost, relative to income, and especially the non-dischargeable nature of the student debt, it’s a legitimate debate and one which I have in my own house. Thus far, we’ve raised the kids with the idea that they’ll be attending college. The high school/college graduate income levels are clearly skewed to the college side and with middle-class American jobs steadily being eroded, we’ve been clear that this is a necessity. But in the past two years, I’ve begun to question whether that college education has to happen immediately after high school or whether it should wait for a few years. Is the degree itself the issue, or the classic out-of-high-school means in which it’s obtained?
Nobody – and I mean nobody – can say with certainty how the economy and job picture is ultimately going to shake out. Will wages drop enough to make a manufacturing renaissance so that there’s a huge demand for machinists and skilled craftsmen? Will things stabilize so that we remain in a permanently stuck service economy? What stays with my wife and I is that there is value in education, enough that a meaningful degree is worth the time and effort to obtain it. The trick is to assure that it’s meaningful and obtained in a way that doesn’t bankrupt anybody.
In the New York Magazine article, certain points stand out. Clearly, there’s a lifetime income disparity between high school and college graduates but it honestly never occurred to me to consider the impact of college debt weighing upon that college income. Given that, I decided to play with some numbers. If you research the average starting salary of a college graduate, the median income of a 2010 college graduate with a job related to their major was $35000 and the median income for someone with a non-related job was only $25000. With the average college graduate coming out with student debt of $24,000 and a typical repayment term of ten years at the Stafford loan rate of 6.8%, the monthly nut is about $276; according to federal debt/income ratios, this requires a minimum salary of $33,000 and is thus manageable for someone with a $35000 income. Understand that the lesser wage of $25000 is specified as hourly. According to the Heldrich study from Rutgers, after one year out of college, only 53% are employed full-time with 14% in graduate school, 2% in the military and the remainder either unemployed or cobbling together what they can.
While I researched for this, there were any number of 2010 newspaper articles talking about how the average job offer for the 2010 graduate was around $50000 with the unspoken upshot that things were actually quite rosy. Just remember however, that there’s a difference between median and mean and a few truly high-paying jobs can pull the mean (average) up and away from the median, which is where the average junior Joe Six-Pack is going to be.
So where does that leave us, apart from having a disheartened adolescent in the house?
- As always, talk with the kids as they age about the mundane reality of personal finance. Want a car? What’s going to happen with auto insurance and gas? How much is spent on housing and the ancillary costs, such as utilities? How is health insurance handled? What’s this budgeting thingy and why doesn’t it consist solely of electronic equipment upgrades?
- Step back and take an honest appraisal whether Junior is actually ready for college. While the long-term benefits of college still accrue in terms of overall wage, the stats above show that the short-term pain is significant and could have a long-term impact. Have you talked with Junior enough that there’s some semblance of a plan or is this just going to be the general-education-for-two-years-and-hopefully-figure-something-out-by-Junior-year approach? If the latter, there’s no shame in discussing whether to work for two years while Junior makes some decisions based upon the reality of the working world. Honestly, the two summers that I spent pouring concrete were significant in recognizing that I wanted a college degree. Besides, the only temporal restriction upon money stored in a 529 plan is that it’s used by age 25 and not upon starting to use by age 19.
- Work with them to determine alternatives. While the kid might be 18 years of age, most at that age do not have the experience and knowledge base to help them figure out where to turn. By the time that you’re into your thirties however, you have a much better sense of where to go and with whom to talk to gather the information for a workable plan. Also speak honestly with them about whether their alternatives make sense. When Eldest was in for her annual physical, the doctor inquired about what she was thinking for adulthood and when she responded in general terms, the physician agreed that that was workable given her grades and skills; I was surprised by the doctor’s subsequent comment that the plan for many teens to whom she talked took the path of professional sports and endorsements. If that’s the case, then there are parents screwing up somewhere.
- Let them know that a "plan" doesn’t have to be set in stone with six month bullet points (although it would be lovely were it true) and can change as the need arises. What matters is that there’s a workable path to a rational destination. It’s also helpful to provide a little perspective from someone who’s further down the lifepath than someone who’s at the beginning and scratching their head.
There are no easy answers in an economy that’s presently shifting gears from one model to another. Change can entail significant pain and the unfortunate reality is that our young adults are among the ones suffering the pain, but the pain can be minimized with some clear thinking, time and perspective.