If you turn on the news, you may hear a debate raging over the value of a college education in the United States. In fact, many have begun to question whether going to a 4-year college* to get a bachelor’s degree is still worth it given the rising cost of tuition and uncertain job market that awaits newly minted college graduates. Putting aside the numerous intangible benefits of college for a moment, let’s address the question from a purely economic perspective. Is going to a 4-year college a good investment?
There are nearly 3,000 4-year colleges in the United States, and each has its own approach to determining how much assistance to offer to students with financial need (often referred to as need-based aid) [ii]. As a general rule of thumb, the colleges that offer the best need-based aid are the colleges that are the most selective public and private institutions in the country. This may initially seem like a paradox. Why would many of the nation’s best colleges – colleges that receive so many applications that they could easily fill every seat with students whose families could pay full price – choose to offer the best financial assistance? First, it’s because these colleges believe that your long-term potential for success has little to do with your family’s present income, and by extension, your family’s income should have little to do with whether you can attend college. Second, it’s because these colleges have substantial sums of money that they have raised over the years, and these funds allow them to put their beliefs about your potential into action by offering financial assistance if you need it.
Let’s take Stanford University as an example, a highly selective university where the total cost of attendance was listed at $62,801 for the 2014-2015 school year. For many families, this may seem completely out of reach. However, the university actually offers substantial assistance to ensure that finances do not keep you from attending. For instance, families of students who make less than $60,000 per year and have typical assets are expected to contribute $0 for a student's tuition, room and board, books, etc. Similarly, students whose families make between $60,000 and $100,000 receive scholarships to cover the entire cost of tuition. These generous financial aid policies are one reason that schools like Stanford see such a high percentage (95%) of their students graduate – the payoff of going to college – with an average of only $15,000 in total federal loan debt [iii].
Does this mean that you must go to Stanford or some other highly selective institution to make college economically worth it? Absolutely not. There are many tremendous colleges – public and private, local and national – where students take on a manageable amount of loans and graduate in high numbers. What it does mean, however, is that not every college's financial aid program is created equal - and you will need to do your homework to understand the true cost of attending a particular institution (a topic discussed in depth later in this resource!).
Another decision that will impact the financial benefit of college attendance is your choice of major. A major is a specialization in your studies that is typically chosen by the start of your junior year (if not earlier), and different majors lead to different career paths and subsequently different income levels.
Earning potential certainly isn’t the only criteria for choosing a major, nor is it necessarily the most important – after all, if you choose something you hate, you probably won’t be very good at it! However, you should be aware up front that your choice of major in college will impact the economic value of your degree. In addition, finding one's first job(s) can be substantially more difficult with some majors than with others.
Copyright 2021 © M. Eduarda Oliveira Canto