Ravenous Costs and Dubious Benefits of a College Degree

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Wolf here: There has been heated discussion and seething commentary in the US, including on Wolf Street and its predecessor site, about the ballooning expense of going to college, and about the pile of student loans – now over $1 trillion in aggregate – that graduates have to struggle with for many years, often at the expense of other economic activities, such as buying a home. Ultimately, the question arises whether or not a diploma is a good investment.

Here is a voice on this topic from the UK where the system is different but the problems and the math are the same.

By Jan Frank, from Britain, currently living in Spain (a Wolf Street exclusive):

I’ve got a 15-year-old granddaughter who wants to go to study at a university. I asked her what she wanted to study, and she told me she didn’t really know, but just felt it was a good idea. After all, the Government had told us all that Britain needed a skilled and trained workforce if it was going to compete with the rest of the world, and she had read that any girl who had been to university earned £250,000 more in her life time than somebody who hadn’t.

She even showed me the article, Degree is worth an extra £250,000 in lifetime earnings for women – but only £170,000 for men, which is more than I could have done at her age. Kids are clever these days.

£250,000 eh? That’s a lot of cash, almost enough to buy a house. Just for three years at a university, and even if you have to pay for the course and borrow the money on which to live, it sounds like a good investment. And not just for the country.

I could have left school at 16. I didn’t because I was a clever little boy, and my teachers told me that if I really worked hard, I might even make it to university. So I worked hard, left school at 18 with a long list of exams I had passed, and then went on to a school of architecture (which has since become a university). It took me another 6 years before I left with that important piece of paper and got myself a real job with a real salary.

So there I was, Mr Architect, complete with 3-piece suit and a briefcase, trotting off to building sites after a hectic morning in the office. At the site I would talk to builders, men who were often only a few years older than me, but who had bought their own house five years ago, drove a large new-ish car and went off to Benidorm for their annual holidays. Whereas I was living in a rented flat, drove a wreck which I repaired myself, and my idea of a holiday was 2 weeks by the seaside in Cornwall. The builder would be respectful and listen to my orders, but from a financial point of view, he was ahead by at least once around the track. What was going on?

Call me stupid, but it took me a few years to realize what was going on. I started earning a proper – but not impressive – salary when I was 26. I got married and had kids – not a particularly cheap hobby. Year by year I earned more, and pretty soon I was earning enough to start paying taxes. As my salary went up, so did my taxes. I also had to maintain my small stable of 3-piece suits, pay for business lunches, and find myself a car suited to my station in life. I was still living in a rented flat. Try as I would, there never seemed to be enough surplus to be able to buy my own flat.  I just continued to work hard and try to impress the boss.  Sooner or later my time would come.

Meanwhile, those builders were forging ahead. Bigger contracts, a bigger house in a better part of town, a bigger car, and perhaps their own holiday flat near Benidorm. They still listened respectfully to what I had to say, but you could almost hear their thoughts on my financial status.

Eventually I worked it out. By this time, small individual computers with spreadsheet programs had arrived, and I plugged in a few numbers, to come to the conclusion that in 1980:

your average architect has to reach the ripe old age of 45 before his lifetime net earnings – after paying taxes – exceed those of the builder who left school when he was 16

That was 1980. I didn’t have to pay for my study – it was free in those days. My parents were poor, and so I got a grant to cover food and lodging; I didn’t finish with a £60,000 student debt (this seems to be the average these days). I didn’t have to spend 2 years as an intern just being paid expenses and pocket-money. I was lucky, much luckier than that granddaughter of mine will be.

So I looked at what my granddaughter would achieve, if she studied. She (or her parents, or me, if my daughter turns the screw really hard) will have to fork out something like £60,000 or so before she gets her diploma. At 23 or 24, she will probably have to work as an intern for a couple of years before she starts pulling in real money.

Whereas, if she leaves school at 16, gets a job cutting hair, sets up her own hair saloon by the time she is 20, and opens a second shop when she’s 24, she can work out that

the girl with a university degree will be 50 or 55 before her net life-time earnings equal those of a fairly intelligent and enterprising person who left school at 16

Yes, during those last 15 or 20 years she will be earning a lot more than the owner of two or three hair salons, but long before she gets to be 55 she will want to buy a house, raise a family, see those kids off to have a life of their own, and arrange for some place where her poor old grandfather can spend his twilight years.

Maybe this country needs lots of educated and experienced people, but I reckon that a company looking for responsible and sensible managers should do well to avoid anyone with a university degree. That degree simply seems to mean that somebody cannot do their sums.

And so I shall tell my granddaughter. Whether she will listen is another matter. By Jan Frank, a Wolf Street exclusive.

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  12 comments for “Ravenous Costs and Dubious Benefits of a College Degree

  1. Thumper
    Sep 11, 2014 at 4:05 am

    It’s the same in Australia. I am a postdoc graduate in a high-tech field and am now too depressed to continue the calculations I did when younger.

    Me: (3-year degree + 2 years postdoc) university fees = AU$35,000 minimum

    Plumber/Boilermaker/Electrician/Brickie: Apprentices are paid > AU$12,000/year

    5 yrs later: Me: in debt by $40,000 / Plumber etc: ahead by > $60,000

    Also, more deductions and room for “deductions” (cash jobbies) for the blue-collar. White-collars are salaried, scrutinised and fully taxed.

    University education? Yeah, go for it!

    • Jan Frank
      Sep 11, 2014 at 11:49 pm

      Know what one solution is? Quit that “well paid” high-tech field and start doing something you really enjoy. I quit when I was 40, drifted for 10 years and am now part of the management of a non-profit craft association. Perhaps not so much cash, but I am not a cog in someone else’s machine anymore.

  2. dc.sunsets
    Sep 11, 2014 at 5:31 am

    I used to say that good math teachers are difficult to find because anyone who can “do the math” doesn’t go into teaching.

    Surely the same applies (in spades) to math majors.

    The facts are obvious to any not swept up in the herd’s stampede to higher ed: Only the very naive borrow big to attend college. Only a complete fool studies what was once a “hobby” until university administrators figured out how to con proto-adults and their deluded parents into pawning the house for a degree in photography or singing.

    It is painfully obvious that higher ed is an overt system of robbing naive young adults of most of the financial benefit, if it even still exists, of white collar occupations. The robbery occurs when the loan papers are signed, but the pain of the loss is spread over a major part of a lifetime.

    The very notion that “everyone” should get a university degree is self-evidently absurd.

  3. dc.sunsets
    Sep 11, 2014 at 5:36 am

    My youngest son once noted that the annual cost of his college was the sum of tuition, room & board plus the opportunity cost of not earning full-time what he was making as a high school student.

    It worked out to about $50k/year.

    Through taking cheaper “gen ed” classes at the local junior college in summers he finished a computer science degree in 2-1/2 years, and started a very lucrative job while his peers were still drinking beer, chasing skirts and digging themselves into a pit of debt from which some may never emerge. When his “team” repaired to the bar after work he was the only one too young to have a beer.

    • Jan Frank
      Sep 11, 2014 at 11:56 pm

      Yes, it’s that opportunity cost that is the real killer. If you can get your act together and put together a useful amount of cash while you’re still young and single, you stand a good chance of running your own business by the time the other guy finishes college and starts looking for his first job.

    • Sep 12, 2014 at 7:00 am

      Your son sounds like the enterprising, clear-headed dude every tech company ought to fight over to hire – and when they have him on board, train him over the years and give him challenges to test his mettle and move him up the ladder accordingly.

  4. Vespa P200E
    Sep 12, 2014 at 8:25 pm

    It seems like college was ticket to good career and affordable when I attended college 30 years ago in California.

    My oldest 17 yr old daughter graduated 1 year early from continuation high school and just started attending 2-yr junior college. She suffered greatly due to rare headache and missed most of her 10th and 11th grade. Seeing your child suffer is one of the toughest thing parent faces… She is taking a science and math class as she is still suffering intermittently. I told her to have open mind but I told her she is better off studying in medical service field like nurse or therapist or start from very bottom working for biotech mfg company as entry level contact employee and move up the ranks.

    I saw a link from ZH last year of this young man living at home, low paying part time job and mooching off his parents with liberal arts degree yet still going to his private FL college football games years after graduation and still buying exorbitantly priced alma mater clothing. This kid in essence never left the college. Classic case of years of good time partying with no doubt large debt since he attended private school.

  5. JB McMunn
    Sep 13, 2014 at 9:37 pm

    Our screwed up school system teaches our kids to “love what you do”, “follow your dream”, and “pursue your passion” while their parents are saying boring uninteresting things like “your employer doesn’t care about your self-esteem” and “your reward for perfect attendence and doing all your work well is a paycheck, not a Certificate of Achievement, which is not legal tender anywhere in the solar system, except maybe Venezuela which has a shortage of toilet paper”.

    • Jan Frank
      Sep 14, 2014 at 7:03 am

      Sorry to disagree with you. My teachers told me “If you can study, go for it. A degree, any degree, is always worth more than no degree”. I only wished that they had told me to pursue my passion and follow my dream, but of course they knew that passions and dreams don’t pay the rent. The trouble is that getting a degree does pay the rent – but that is all it does. It doesn’t make you rich and it doesn’t fulfill your dreams. Or, as the UK government insists, it will make the country rich – which is not quite the same thing, as us members of the 99% know.

      • Vespa P200E
        Sep 14, 2014 at 8:38 am

        “A degree, any degree, is always worth more than no degree”.

        Sorry but this “any degree” may be the reason why so many young people are in trouble today. Granted any degree is better than none 20+ years ago but attending private college while pursuing worthless liberal art degree like art history, ethnic studies, etc. is absolute waste of money now days and drags the poor chap who enjoyed his college years saddled with lot of loan to pay off while working part time for close to minimum age with no benefits. And these, no doubt, Obummer voters are demanding some kind of student loan debt relief AKA forgiveness since many consider themselves as something special and the government owes them something.

      • JB McMunn
        Sep 15, 2014 at 10:06 am

        But what about the alternate universe where you followed your dream? You had to give it up because you got tired of living in a single-wide and tending bar part time to follow your passion and you wished you had listened to the people who told you to get a degree? Then you died a bitter disilluioned pauper.

        • Jan Frank
          Sep 18, 2014 at 5:24 am

          Well, that’s precisely what I did at the ripe old age of 40. Stopped my career, bought an old van, and went off to follow my dream. And here I am, 30 years later; not rich but not hurting, having done what I wanted to do instead of doing what other people wanted me to do.

          All that a degree does is get you a LITTLE more money – about $90 a week in your working life after taxes; is that worth losing your dream? Anyone who has enough get and go to get a degree can also pursue a dream without ending up a disillusioned pauper.

          The people who got their degree are usually the ones who buy themselves their first Harley when they’re 55 – they are not paupers but usually they are pretty disillusioned.

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