Keep an open mind about the best path forward for your particular kid, even if that means they never … [+]
Higher education has been good to me.
I graduated from a well-regarded undergraduate university with a diploma, my future bride and the best man at my wedding. I left graduate school with a job that has, so far, turned into a flourishing career.
I’m living the American Dream.
Yet, as my oldest nears 11, I’m wondering (sometimes doubting) if he (or the rest of my brood) should follow my wellworn path of getting a degree.
The Case For College
College’s benefits are well-known, but worth stating clearly: The obvious advantage is the opportunity to earn a high salary.
“New York Fed researchers estimated that the value of [the college wage premium] over a 40-plus-year career is about 14%,” wrote personal finance journalist Ron Lieber in his book The Price You Pay For College.
For instance, nurse practitioners ($130,000 median salary), data scientists ($108,000) and information security analysts ($120,000)—all of which require at least a bachelor’s degree—are expected to be among the fastest-growing professions over the next decade, according to the Bureau of Labor Statistics.
The average unemployment rate for college graduates between the ages of 22 and 27 was just 5.3% as of August 2024, per the New York Fed, compared to 6.7% for young workers without a degree.
You also have access to various types of jobs, from actuaries to veterinarians, that often come with good health insurance and retirement savings. There are simply fewer high-paying professions for high school grads.
That point was underlined in a 2018 analysis by economist Douglas Webber who showed that the average college graduate will earn $900,000 more than the average high school graduate during their careers.
“96% of college graduates will out earn the median high school graduate if they have no college costs, though this drops to 87% for those who pay $50,000 a year,” Webber writes.
In his analysis, Webber estimates that the net present value of a college degree (basically the value of future gains in today’s dollars) is $344,000.
There is little doubt that if my chief concern was my son making as much money as possible, I would send him to the best school that would take him.
And then there’s the social payoff.
College, at its best, offers a venue to challenge your worldviews, introduce you to people you wouldn’t have otherwise met and create memories that last a lifetime.
You might have gone off to university with vague notions of being a lawyer and left four years later with a degree in logistics and supply chain management (another growing field).
Add in the parties and tailgates and postponing adulthood by four years, and who doesn’t see the appeal?
The Case Against College
The financial advantage, though, rests on a few assumptions, including that you actually graduate.
“There’s little payoff without a degree, and 6 in 10 students who start don’t finish,” writes Webber.
When you take the risk of not completing your degree into consideration, Webber finds there’s a 78% chance that college won’t pay off.
Going to an expensive college, or taking out huge loans to finance your education, will reduce your chances, too. For instance, if your costs are $50,000, the odds of a college degree being worth it drop to a coin flip, per Webber.
And then you need to take into account what you’re actually studying.
High-earning majors, such as STEM, led to $2 million more in earnings than lower-earning ones, such as arts.
That means if you go to a private university (guilty) with an average cost of attendance (guilty) and majored in arts or humanities (guilty), there is just a 50% chance of the college payoff being worth the investment.
College Alternative
This makes me wonder: What would happen if my kid applies himself to a trade that doesn’t require a college degree?
For instance, the fastest-growing occupation over the next decade, according to the Bureau of Labor Statistics, is wind turbine service technician. The number of job openings is expected to increase by 60% by 2033, and the current median pay is about $62,000.
Best of all (for my purposes) it doesn’t require a bachelor’s degree, though you do need a certification.
So let’s say my kid went straight from high school to the wind turbine trade, earning the necessary certifications (cost: $8,000 to $14,000) along the way.
What kind of financial position would he be in?
Starting with the median salary, assuming a 4% annual raise over the next 10 years (a reasonable assumption given the demand for the job) and providing that he saves 5% of his pay into an emergency fund (easier when you don’t have to worry about student loans), he’ll have more than $37,000 saved by the time he is 28.
He’ll also have access to money that my wife and I earmarked for his college education since Congress recently allowed parents to turn unused savings from 529 plans into Roth IRAs for their kids.
It’s not a simple process, to be fair. You need to have owned the account for 15 years, the contributions made in the last five years can’t be rolled over tax free, you can only roll over $35,000 total and no more than the maximum savings limit in any given year.
But I should be able to do this for my kid by the time he’s 28.
In this scenario, he’s making a little less than $90,000 (perhaps even moving to a supervisor role), and it’s time to settle down. So he uses his savings, along with a $10,000 penalty-free withdrawal from his Roth IRA, to put 10% down (typical for first-time buyers) to buy a $350,000 home.
He’ll still have $12,000 in his emergency fund, along with the remaining $15,000 in his Roth IRA (minus the cost of the certification).
By comparison, I got my first full-time job in journalism just before my 27th birthday, had little in the bank (either in a savings account or for retirement) and was renting a small apartment with my pregnant wife.
What Should You Do?
That scenario is rosy, but so is the idea that your kid will invariably graduate school in four years with a good job lined up.
The lesson, then, isn’t to follow a strict path, but appreciate that college isn’t just for exploration, but achievement. It’s simply too costly to attend and not graduate, or take on lots of debt for a low-earning career.
Students and parents need to be unsentimental about weighing risks and rewards, and come up with a gameplan that takes costs and future earnings into account.
My son is free to earn an art history degree, but he’ll need to earn money in a gap year, attend an in-state public school or graduate early (if not all three) in order for the decision to make sense.
Also consider what help you can provide. I can use the 529 in my kid’s name for his college tuition, or his post-college financial needs, but not both.
Keep an open mind about the best path forward for your particular kid, even if that means they never hang a college diploma on their wall.