Will College Pay Off? Big Bills Call for Smart Choices

The average total cost for one year at a four-year public college surpassed $18,000 in the 2013–2014 academic year, and charges rose to nearly $41,000 at private institutions (costs include tuition, fees, room, and board). A four-year undergraduate education can range from $100,000 to $200,000 per student, which means even affluent families might find it difficult to pay for their children’s college expenses without borrowing money and/or putting their own retirements at risk.1

As the price of college tuition has increased faster than incomes, students have been borrowing more to fill the gap.2 The total amount of U.S. student-loan debt reached $1.2 trillion in 2014, nearly three times the amount in 2004. In fact, about 70% of the class of 2014 graduated with student debt averaging $33,000, up from $18,600 in 2004.3

College loans are relatively easy for students and parents to obtain, but a growing number of defaults suggests that college debt is often more difficult to repay.4 A weak job market has resulted in an increasing number of underemployed graduates, a situation that can be especially tough for those who are mired in debt.5

With the financial futures of college-bound students and supportive parents at stake, it may be more important than ever for families to make informed decisions.


Bang for the Buck

Soaring costs and diminishing rewards have left many people wondering whether college is worth the time and expense. Still, the earnings gap has continued to widen: Workers with four-year degrees earned nearly twice as much as those without degrees in 2013. According to one study, not going to college could cost someone about $500,000 in lost earnings over a lifetime.6

A recent Federal Reserve ­analysis comparing the costs and benefits of a college degree found that college is a “sound investment.” Graduates earned an average annual return of about 15% over the last decade. Results varied by area of study: Engineering majors experienced the greatest rate of return (21%); education majors had the lowest (9%).7

Thus, it is important to take a hard look at earning potential when choosing an academic program. Students who plan to enter lower-paying fields may fare better if they are able to keep costs down and hold borrowing to a minimum.

Shopping for College

Financial-aid packages differ from school to school, and many students don’t pay published tuition prices. This price disparity can make the college research and selection process rather confusing.
The U.S. Department of Education has a website designed to help families compare the affordability and value of U.S. colleges. The College Scorecard (www.collegecost.ed.gov/scorecard) includes information for each school, including the typical student’s net cost (after grants and scholarships), the graduation rate, the loan default rate, and estimates of the typical student’s loan amount and monthly payment.

For a more personalized picture of potential costs, families can utilize each school’s net price estimator, which takes their financial information (such as income and assets) and the student’s academic performance into account.

Mastering the Process

Students who hope to receive grants and/or loans to help cover college costs must complete the Department of Education’s Free Application for Federal Student Aid (FAFSA). To increase your chances, you may want to file your tax returns, complete the FAFSA, and apply for aid according to the college’s instructions as early as possible.

Higher-earning families should also fill out the FAFSA because they may qualify for more need-based aid than they might expect, and some schools may require a completed FAFSA for merit-based scholarships.

Life After Debt
When making college decisions, students often pore over college rankings and data indicating which schools or programs produce the highest-paid graduates. But they might also consider the surprising results of a recent Gallup poll.

Graduates of the top 100 universities (ranked by U.S. News & World Report) were no more likely to say they were thriving in five aspects of well-being than were graduates of other institutions. Only 4% of graduates with $20,000 to $40,000 of college debt said they were “thriving,” compared with 14% of those with no debt.8

One takeaway is that elite universities may not provide as many economic and career advantages as one might assume. In fact, where a person studies may matter less than having the opportunity to earn a degree without racking up a burdensome amount of student debt.

1) The College Board, 2013
2) The Wall Street Journal, January 15, 2014
3–4) The Wall Street Journal, June 14, 2014
5, 7) Federal Reserve Bank of New York, 2014
6) The New York Times, May 27, 2014
8) Gallup, 2014


The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2014 Emerald Connect, LLC.