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Why paying more than $50K for college is a gamble

(Source: www.marketwatch.com)

For decades, Americans have viewed a college education as a ticket to the middle class. But stagnant wages, rising college costs, growing student debt and the proliferation of degrees of varying quality have called that notion into question.

Skeptics of the value of a college education assert that as a nation, we’ve promoted the four-year degree as the gold standard at significant cost — siphoning students who are more likely to succeed in cheaper, career-focused programs away from them. On the other hand, college access advocates and economists regularly remind families that students with a college degree tend to be better off than their peers who only graduated high school.

New research aims to inject some nuance into this conversation. While having a college degree is certainly better than not having one, on average, there are some factors that change the equation, according to an analysis conducted by Doug Webber, an economist at Temple University and published Tuesday by Third Way, a center-left think tank.

The typical college graduate will earn $900,000 more over their working life than a typical high school graduate, the study found. What’s more, college graduates are on average about 177 times more likely than high school graduates to earn $4 million or more in their lifetime.

But how much a student pays for their degree, what they study, and perhaps most importantly, whether they remain in school can significantly alter the return they receive on their monetary and time investment in college. More than 95% of college graduates will accumulate more money in their lifetime than a typical high school graduate, but that share drops to 87% if a student spends $50,000 or more on their education, the study found.

Webber said he hopes the study, which is based on various government data sets, will start shifting the conversation surrounding the value of a college degree from one about averages to one about individual risk.

“It is arguably the safest financial investment that you can make, but there is a reasonable chance that it won’t wind up paying off,” Webber said of a college degree. “If you’re someone who is much more risk averse, that’s something you should be aware of.”

It’s getting riskier to invest in college

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Indeed, the risk in attending college has certainly grown over the past several years. Decades ago, a student could give college a try and lose little more than their earnings from a summer job if it didn’t pan out. Now the college financing system is so reliant on debt that it’s rare for a student to enter school without taking on loans. And students trying out college and leaving with debt, but no degree, is one of many factors fueling our $1.5 trillion student loan problem.

That risk is particularly acute for students who don’t have financial room to make mistakes in school, said Faith Sandler, the executive director of the Scholarship Foundation of St. Louis, which works with low-income students during the college application process.

Sandler’s organization tries to counsel students to make a “a calculated risk rather than signing up for something that will not move them towards their goals,” she said.

They do this by talking to students about what they hope college will help them achieve — a specific job? Propel them towards a social justice purpose? Expand their minds? Some combination of all of the above? Staffers at Sandler’s organization also talk with students about when in their college career they can shift their major or make other changes with the least risk of financial fallout.

Finally, they help students wade through their different financial aid offers. “Our work is about getting between the student and the marketing machine on the admissions side to say, ‘Now let’s look deeper or closer at this package.’” Often schools will dangle seemingly generous scholarship offers in front of students that still require their families to find a way to cover significant costs they may struggle to afford, she said.

When that gap pushes student to fall short in their second semester, second year or any other time during their college career the risk increases that they’ll drop out. “The numbers were never going to work,” Sandler said.

‘Looking only at people who eventually graduate is like looking at people who won the lottery’

Webber’s study confirms that mitigating the risk of leaving school without a degree can be important. Often the data used when discussing the value of a college degree compares the earnings of college graduates with those of high school graduates. But by including students who enter college, but don’t complete into that accounting, Webber’s study paints a more nuanced picture of risk involved in giving college a try.

That pushes the odds that college will pay off down to 78% if there are no costs, his study found. But for students who spend at least $50,000 there’s basically a 50/50 chance they’ll get a return on their investment. “In some sense, looking only at the people who eventually graduate is like looking at people who won the lottery and saying you should play the lottery,” he said.

And there are a variety of reasons why life can get in the way of a student’s ability to complete their degree. Yolonde Powell-Collins was one class short of her associate’s degree in 2013 when she had to leave school to deal with a divorce. She finally got that one class and finished up her associate’s degree this year. Now she’s working towards her bachelor’s degree.

Powell-Collins, 44, who lives in Spokane, Washington, credits a local organization, Greater Minds, with helping her navigate the paperwork and other logistical challenges involved with getting back to school. Even with that help, making it through school can be a challenge; she attends college full-time while also working in the clerk’s office of juvenile services for Spokane County and as a cook in the kitchen at another local college.

“I go from court room to kitchen and I take my books with me everywhere,” she said. “I just study when I have little bubbles of time.” Though Powell-Collins is excited and proud to be working towards her degree, she expects to leave the experience with “a mass amount” of student debt. So far, she’s accumulated about $58,000.

Marquee schools may not be as valuable as they appear

Of course the question of value weighs more heavily on adult students working their way through school, like Powell-Collins, and 18-year-olds whose families don’t have financial room to buffer them in the case of an error. But even for students who come from families with more resources, it’s important to maximize the return on investment in a college degree, given its high cost. At least that’s what Andy Lockwood, a financial aid consultant based in Long Island tries to tell his clients.

Far too many students and their parents are focused on “rear window sticker” colleges or schools whose names will look impressive when plastered on the back of a minivan, Lockwood said. Often these schools don’t provide any more value than a cheaper, local public college.

“It’s hard to justify that in my mind — paying up for an okay school,” he said. What’s more, a little bit of research can reveal lesser-known colleges that are relatively generous with financial aid and offer better career services or departments specific to a student’s interest than those rear window sticker schools, he said.

Lockwood helps students and families find a college with decent value by first evaluating what the student is interested in, considering how that might affect them financially when they leave school, and looking for colleges that offer programs related to their chosen career cluster, but are also affordable.

“The first stage is trying to figure out how you’re wired and what that could translate into,” Lockwood said. “Nobody does that, what they do instead is they just think about their four years of college and not just about the 40-plus years after.”

Dena Higgins said she wishes someone had sat her down to walk her through her expected salary after graduation and the cost of living in New York City, where she hoped to live after graduation, before she transferred from a cheaper school to a more expensive one.

Now 38, Higgins convinced herself that leaving St. Bonaventure University in upstate New York — a school that awarded her a generous scholarship — to attend New York University, which would cost her much more, made sense. She was studying journalism and wanted to be close to more opportunities.

While she was working for pay, interning for free and studying at NYU full-time, Higgins said she had a moment where she wondered: “What did I get myself into? I’m going to have so much debt when I graduate.” And indeed, Higgins, who now works as a digital media producer, is still paying back those five-figure loans and may be doing so for another 15 years, she said.

Though Higgins is proud of her degree, she says, “if I could do it all over again, I wouldn’t have transferred schools and accumulated the debt that I did.”

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More Info: www.marketwatch.com

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