Does Education Pay?

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Does Education Pay?

The cost of education is completely out of control. This dynamic is forcing people to re-evaluate the traditional view that educational is an infallible investment and a one-way ticket to prosperity. Is an undergrad from any school worth $200,000? Does it make sense to drop $25,000 for a one-year specialty, technical program? 

In order to provide some texture to this conversation and demonstrate how education expenses are affecting people’s lives, here are the stories of 3 people I recently met who are having very different educational experiences.

Story 1: Anna-21 yr. old Senior at Georgetown

Anna is a spunky 21 yr. old from Chicago. She graduated at the top of her high school class and enrolled at Georgetown to fulfill her dream of studying French. 

Anna said her parents weren’t rich, but they agreed to pick up the $200,000 tab because they “believed in education.”

She ended up studying French for about a week before realizing she was hopelessly outgunned by her already fluent international cohorts. She decided to switch her major. Now in her 4th year, I asked her how she felt about staring down the barrel of a degree in Government Studies.

“I don’t even like the government.”

Anna says she’s not really sure what she wants to do when she graduates, but is thinking about going to grad school.

The financial and psychological reality of this situation is staggering. How did a family spend close to a quarter million dollars on something that is neither desired nor particularly useful?  Did she get something she couldn’t get anywhere else?

Probably not. 

A good state school like the University of Illinois has heavyweight academic credentials at half the cost.

Unfortunately for Anna and her family, it sounds like she is 0-for-2. She isn’t going to be doing something she loves and probably won’t be making much money doing it with a lame duck degree like government studies.

Here’s a suggestion for all the people in the world interesting in studying the government.

Get a summer job at the DMV and you will learn everything you need to know.

Story 2: Ryan-22 yr. old Kansas State Grad-Marketing

Let’s move on to the next subject, Ryan, a 22 yr. old recent graduate of Kansas State University with a degree in advertising and marketing. In order to work on his copy-writing skills and beef up his portfolio, Ryan has enrolled at the Chicago Portfolio School.

I did some research and found out that his 1-yr. program was going to cost him about $20,000 for what looks like mostly self directed independent projects. When pricing in his lost income of $35,000, the price tag on this operation comes out to about $55,000. This had better be one ridiculously awesome portfolio Ryan, because you are going to be paying for it for a LONG time.

Not only is this a very expensive decision, but the strategy doesn’t make any sense either.

As a would-be copy writer, Ryan will be competing with creative types. Creativity isn’t something that can be taught in the classroom, you either have it or you don’t. And if his goal is to work on the ‘business side’ of advertising, he would be better off just going to business school.  

Making things even worse for this hapless soul, his $55,000 one-year investment buys him admission into an industry that has been getting crushed for the last 5 years as technology has completely remodeled the face of advertising.

In the old-days, advertising was driven by cutesy Super Bowl ads and Regional TV Campaigns.

But now, it is a world dominated by software programs and algorithms, guerilla technology blasting the right people at the right time on the Internet and other targeted venues. 

You wanna be an advertising guru?

Study programming and learn how to spam.

Are There Any Winners?

Now that we’ve spent some time discussing how easy it is to spend lots money on education for little in return, let’s take a look at someone who has developed a winning formula, focused on 2 key criteria.

  • Value
  • Specialized skills in a growth industry

Our final subject is Travis, a 22 yr. old who just graduated from the University of Texas with a degree in computer science. He paid in-state tuition and finished debt free. This clever bastard is now on his way to the University of Chicago on a partial scholarship to study mathematics.

I know people who have graduated from this program, they can expect to make between 90K and 100K in their first year as companies jockey for candidates with highly technical and quantitative skills.   

His first-year earnings will equal the total cost of his 6 years of secondary education; placing his education/earnings ratio at 1:1.

What about Anna? She paid twice as much to earn half the rate. Her ratio is 5:1. 

Here is a question I want everyone to think about.

If each of these individuals was a stock, which one would you want to buy? I don’t have to think about this for even a second, the answer is pretty obvious. And that is exactly how we need to start thinking about education, as a long-term investment that has serious financial implications.

Conclusion

You’d be hard pressed to find a rationale person who didn’t think there was inherent value in almost any kind of education. And you can never put a price tag on doing something you love.

But the cost of education has gotten so out of hand that it now requires a vigorous financial examination.   

So whether you’re a parent, student, or a professional thinking about acting like Rodney Dangerfield and going back to school, it pays to use a strategic cost analysis when making your decision in order to get the most bang for your hard-earned buck.

 

chart provided by: inflationdata.com/Tim McMahon
chart provided by: inflationdata.com/Tim McMahon
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8 thoughts on “Does Education Pay?”

  1. This is amazing- very well written, and I was definitely laughing out loud at your synopsis of each situation. I was going to apply for grad school this year, but now I’m not so sure. 🙂

  2. As an adjunct instructor of Retail Business at Columbia College, I can certainly appreciate this discussion. Many of my students struggle with finishing college or working more (and not continuing their education). I absolutely support a full education of at least a 4 year degree, but also believe the costs associated with education are getting outrageous! Thanks for the thoughts and insight.

  3. Seems easy enough to make the decision when you have good state schools like Illinois. What about when you have no choice but to go out of state? And, unfortunately, I think Anna’s case is all too common. – I really believe it’s too much to expect a 17 or 18 year old to know what they want to do for the rest of their lives.

  4. It seems to me that higher education will be the next bubble to burst. I know people who went to law school simply because they “liked to write”. And now, those same people are graduating $200,000 in debt from Top Ten law schools (Harvard, NYU, Chicago etc.) where the number of employers visiting campus has dropped 50% and many students won’t get high paying jobs.

    You’d better really be going for your passion to take on massive debt or else it will be a prison (especially as education loans cannot be discharged in a bankruptcy. They’re with you forever, basically.)

  5. Last year at Indiana University, four seniors I worked with (who had business degrees and internship experience) were getting their job offers revoked or pushed back 6 months. Those people came back to IU as their only choice and are now paying even more money tin tuition.

    With the job market much tighter than it has been in years, it is important to go into college knowing EXACTLY what you are going to do before you get there. What you study needs to give you specialized skills that separates you from everyone else in the pool, otherwise companies will just throw your resume out the window.

  6. As a person who never went to college, I think college is overrated. I believe Diving into the job market to get first hand experience is much more beneficial. Obviously some doors won’t be open at the start, but you can always work into those positions. With the company footing the bill for training and further education. Hit the ground earning. You’ll figure out if its what you want to do alot quicker, and not be thousands in debt with the wrong major.

    Being a father of two very smart little girls, that will certianly be going to college. I hope it is the next bubble. But the worldly demand for the best of higher education will not go away. And its here in America.

  7. Alex you make a good point about obtaining a skill rather than a diploma. Higher Education is becoming a high risk venture with uncertain returns for many American students. Do the benefits out way the costs? What should be my focus in college and what do I want to do for the rest of my life? This is a hard decision for anyone to make, let alone a late teenager. And..Quite frankly, the ones that do know; I tend to find extremely suspicious.

    One of the great “in-house” businesses that America can still lay claim to is the higher education industry. If you think of the one industry that is not out sourced, but rather insourced, it would be our University system.

    The above comments about a potential “bubble burst” in this field is a really interesting topic. The costs are becoming out of control and as I stated before the benefits are not certain. As other countries begin to raise their standard of living, their school systems will improve, which will in turn attract many of our foreign students causing a “brain drain”. But perhaps this potentially could be a situation where we’re reminded why competion is good. Who knows, maybe someday it’ll be cheaper and more prestigious for an American national to go to the Univeristy of Bangladesh as opposed to the University of Illinois. If this fantasy scenario rings true………

    Will this force Universities in the United States to lower their costs to remain competitive? Or will their balance sheet begin to consistantly fall in the red rather than black causing them to fold. And consequently “Bursting the American University Bubble’?

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