By Jill Schlesinger
Tribune Media Services
As the Class of 2014 throws their caps into the air during this graduation season, many families are facing the stark reality of a mound of education debt. Given the still-tough job market, is college worth it? The answer is yes, with a caveat.
Let's start with some of the numbers: 37 percent of households are carrying some student debt - the highest share on record; and total outstanding student debt (federal and private) stands at over $1.1 trillion. A recent Federal Reserve Bank of San Francisco study found that most students recover from those loans within 20 years of graduation.
Still, the mere existence of that debt may impair graduates the ability to build their financial lives. Some are unable to consider a wider range of career opportunities that may be more lucrative in the long run; others can't afford to contribute to retirement accounts due to large debt payments; and many can't purchase homes as early in their lives as they used to in the past. Recently, the National Association of Realtors noted that student loan debt is hurting home sales: "20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. In our recent consumer survey, 56 percent of younger buyers who took longer to save for a down payment identified student debt as the biggest obstacle."
But that college degree provides a distinct advantage over those who don't have the coveted diploma. While the job market is still weak (9.8 million people remain unemployed as of April), according to Economic Policy Research, the unemployment rate for young college graduates stands at 8.5 percent, much lower than the 22.9 percent for high school graduates. And research from Pew Research shows that the household income of young adults with college loans is nearly twice that of people who didn't attend college ($57,941 vs. $32,528).
And even though 66 percent of students now borrow to finance college versus only 43 percent of their parents' Baby Boomer generation did, Pew notes the value of a college degree has increased from one generation to the next. Between 1965 and 2013, median annual earnings, among college-educated full-time workers aged 25-32, rose to $45,500. Meanwhile, their high-school-educated peers lost more than $3,000, with earnings falling to $28,000 over that time period. In other words, a college degree is worth more and a high school degree alone is worth a lot less.
That differential adds up over time: that Fed study showed that the average U.S. college grad can expect to earn at least $800,000 more than the average high school graduate over a lifetime.
Here's another reality: college education is in high-demand and is projected to rise. Researchers at Georgetown predict that in the next six years, the share of jobs requiring post-secondary education will likely increase to 64 percent by 2020, which would be a big increase from 50 percent in the 1970s. This trend leaves adults with only a high school diploma with far fewer job options.
Still, piling on education debt willy-nilly can be a recipe for disaster, for both students and their families. One way to keep debt levels in check is to only assume a total student debt load that matches what you think you will earn in your first year of work. If you're going to be an engineer, you can borrow more than say, an art history major.
According to the April 2014 Salary Survey from the National Association of Colleges and Employers, the overall average starting salary for Class of 2014 bachelor's degree graduates increased by 1.2 percent to $45,473 from the results of the Class of 2013, but engineers saw an average of $62,719 as a starting average salary (not to mention the eye-popping starting salary for petroleum engineers, who start as $95,300), versus those graduates earning degrees in the humanities and social sciences, whose overall average starting salary was $38,365.
Jill Schlesinger, CFP, is the Emmy-nominated CBS News Business Analyst. A former options trader and CIO of an investment advisory firm, Jill covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." She welcomes comments and questions at firstname.lastname@example.org. Check her website at www.jillonmoney.com .
This was printed in the June 15 - June 28, 2014 edition.