Is College Worth It?

I just realized that apparently I haven't yet written an obligatory article questioning if college is worth it or not.   I jokingly asked if high school was worth it or not, but I didn't really discuss if college is worth it.  I'll now fulfill my obligation as a personal finance blogger by beating this dead horse of a topic.

Is college Worth it?


Probably, usually... but it depends.

I kind of think that this question is like asking if buying a car is worth it or asking if owning a house is worth it.   Clearly these things can certainly be 'worth' buying in the right situation and not worth buying in other situations.   

There is no blanket right or wrong answer.

Every students skills and desires are different, every college is different, every college major is different and everyones financial situation is different.  

I think that I can say in general that : 

If you're a decent student with an inclination to learn and you pick a fairly reasonably marketable degree and attend and graduate from reasonably affordable quality university then yes college is going to be worth it for you.  

I do think that you should be a reasonably decent student for college to be a good idea.  I've said before that I think that if you can't get at least B average grades in high school then pursuing college is likely not for you.  When I said that a few people took exception... called me narrow minded, ignorant, etc.   Of course theres always exceptions but generally if you aren't a good student in high school then you shouldn't expect to do well in college either.    My pointed is backed by data if you compare High School GPA versus College Success then people with poor high school grades do poorly in college the vast majority of the time. 

It is also very important that you actually graduate.    Too many students start college and fail to graduate nowadays.   Having 'some college' is actually beneficial and people who do attend some college but don't get degrees do tend to have higher paying jobs.  However I'm not entirely sure if thats cause and effect or just coincidental.

I also think that MOST students would benefit greatly from at least getting a two year degree or pursuing a skilled trade.     A high school diploma will not get you very far in the workplace nowadays.   Most students are going to do much better if they have at least an Associates degree or skilled training in a trade.

For roughly 30% of the population it makes a lot of sense to pursue a 4 year undergraduate bachelors degree or even advanced graduate studies or professional degree.  Around 30% of jobs require college so it makes good sense that 30% of people should be getting college degrees to fill those jobs.

There are situations when college is absolutely worth it.   Are you a good student that wants to become an engineer, doctor, accountant or nurse?   Then college is not only worth it, its pretty much mandatory.

There are situations when college is definitely NOT worth it.    Are you a budding entrepreneur who already has a thriving and successful business and who didn't learn well in a classroom environment?   I think anyone in that situation would be wasting their time and money more than not by attending college.    Are you a C student in high school who is really good at fixing things and have a particular desire to work with your hands and enjoy fixing cars?   Then getting a bachelors degree may not be your best career choice and you may be much better off pursuing a career as a car mechanic.

In between there are shades of gray where college can be more or less worth it.   For a student who got mostly B's in high school and who is vaguely interested in English the value of a college degree is less clear.   If this student starts college with a good attitude and studies and applies themselves, goes to a low cost public school or gets a fat grant from a private school and gets a reasonably flexible degree like English that isn't in an over saturated specialty then getting a four year degree may very well be worth the cost.   On the other hand if that student parties too much, goes to an obscure private school cause they are convinced they 'need' too, piles up the maximum in private student loans and then changes majors into communications because its close enough to English and then drops out after their 3rd year at sophomore status then in that case college is most certainly not worth it.

Bottom Line : It depends.

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Only 0.3% of Bachelors Degree Recipients Accumulate over $100,000 in Student Loans

For a while now I've been a little annoyed how the media seems to always find a student who owes over $100,000 in student loans and then cite them as an example borrower.   The articles like that make it seem like people that heavily in debt are typical or representative of a normal college student.

When I wrote Is There Really A Student Loan Problem I tried to find data about how many students actually end up accumulating over $100,000 in student loans but I couldn't find anything.    I had guessed that less than 1-2% of students end up owing over $100,000.  

Well I now have the data.  Thanks to a recent article from MyMoneyBlog that pointed to the article Student Loan Debt: Who Are the 1%? from the New York Times.  

That NYT article says:


"Only one-tenth of 1 percent of college entrants, and only three-tenths of 1 percent of bachelor’s degree recipients, accumulate more than $100,000 in undergraduate student debt."

They are excluding people who went to graduate school or professional school, so this is just for people who went to undergraduate programs.   The NYT article cites data from U.S. Department of Education, Beginning Postsecondary Students Survey (2009).

So there you go... a fraction of a percent of undergrad students actually end up in  debt for 6 figures.

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Private Student Loan Data - Some Students Should NOT be Using Private Loans

This study titled Who Borrows Private Loans   has various data on the demographics of private student loan borrowers.   Its from 2007 but new enough.  I pulled some data from the study to make the charts below.

First we look at whether or not private student loan borrowers have Stafford loans or not and if so if they maxed out their Stafford loans.

Almost a quarter of private student loan borrowers have NO Stafford loan.   Another 21% of private loan borrowers have Stafford loans but they didn't take out the max available.  Altogether there are 46% of students borrowing from private student loans who haven't borrowed as much as possible from Stafford loans.   All of these students should be maximizing the Stafford loans before getting a private student loan.   Not all students qualify for subsidized Stafford loans but even if you don't have financial need you can still get unsubsidized Stafford loans which are better terms than private loans.

Second here's a look at what type of university or college the private student loan borrowers attend.

As I would expect a large number of the students attend the generally more expensive private non-profit four year universities and the for profit universities.    However as you can see theres still a significant number of students going to both two and four year public schools who borrow private lenders.   

12% of private loan borrowers are attending public two year universities.   Its hard to see why someone going to a public 2 year university would really need private loans.   Community Colleges are generally rather cheap to attend and if you can't afford the cost of school then you would at least have money available from Stafford loans.   If Stafford loans or other financial aid aren't enough then you should be getting a part time job.

The study makes a couple points relevant to this topic:

"Almost 90 percent of private loan borrowers apply for other types of aid, and 64 percent receive some type of grant assistance."

"When students who do not meet the eligibility criteria for federal student loans are excluded, one out of five undergraduate private loan borrowers did not first take advantage of federal student loans. Half of these students did not file the necessary application for federal student loans."

10% of private student loan borrowers did NOT apply for other types of aid.   It seems to me that those 10% of students are likely missing out on some aid.   I would guess that some if not most of that 10% didn't apply for aid because they assumed they would not be eligible.    But as I pointed out before you can still get unsubsidized Stafford loans even if you don't have financial need.


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Rental Comp Data for November 2011

Today I decided to check up on rent rates for one of our rental properties.   I checked the prices on Rentometer.com   However I realized I had no record of the Rentometer rates from previous years.   I know I'd checked it in the past but I didn't actually make note of the rent rates.   Therefore I decided that it would be best to track the rates over time.  That way I can see if there are any positive or negative trends for the rent rates in the neighborhoods that our rentals are in.

First a quick word on setting rents.   I wrote about how to set your rent in the past.   You should get data from a variety of sources.  HUD Fair Market Rents, Rentometer.com and Craigslist are all valuable sources of rent rate information.    I also pointed out in a previous article how I think that spending the extra time to research rent rates is important.   I'm just tracking Rentometer numbers here for my reference but I wouldn't stop there when doing your own research.

I checked rents for 4 properties on Rentometer.com and here are the results :

	A	B	C	D
	3bed	3bed	1bed	1bed
	house	house	apt	apt
10%	$684	$700	$415	$414
20%	$744	$756	$435	$439
median	$895	$875	$495	$495
80%	$1,175	$989	$586	$585
90%	$1,295	$1,220	$675	$650
# prop	1,000	57	1,000	1,000
dist	3.0	2.5	3.2	4.3

Properties C and D are located in the same city a few miles apart.  A and B are located in different cities.

Our rents are above median for the houses and below median for the apartment units.  

Rentometer reports the rates that the bottom 10%, bottom 20%,  median, top 20% and top 10% are.    They also report the number of properties they compare to in the area and the distance the properties are apart from one another.  I've made note of all this data.

Notice that property B only had 57 comparable rental data points in the Rentometer database.   That could mean their price data for that location has a higher margin of error.   I would think that 57 properties is 'good enough' to get a decent average that wouldn't be skewed much by some particularly high or low figures but its worth noting their sample was low there so it could be a little more suspect. The other properties had 1000 comparables so that is a LOT of data and should have a pretty solid average.

I don't believe that Rentometer knows if a property is a single family house or an apartment.   People will pay more rent for single family houses than apartments so you should keep that mind if you're using Rentometer.   Our rents for the houses are above the averages cited but like I said I assume the comps have a lot of cheaper apartment units.

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