TIME Careers & Workplace

Here We Go Again: Is College Worth it?

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Acilo/Don Farrall—Getty Images

As an advocate for skipping college blesses 20 new fellows with seed money, new data shows pay advantage for graduates is growing.

The debate over whether college is worth the money may have taken a decisive turn. Unquestionably, it is—even if you must go into debt to get the degree—new data suggests. Still, there is no convincing folks at the Thiel Foundation, which just blessed a fourth class of dropouts with money to start their own business.

First, the new data: Americans with four-year college degrees made 98% more an hour, on average, in 2013 than people without a degree. That’s up from 89% five years earlier, 85% a decade earlier and 64% in the early 1980s. These figures are based on an analysis of Labor Department statistics by the Economic Policy Institute and first reported in The New York Times.

Researchers conclude that over the long run not going to college will cost you about $500,000. That’s double the penalty for not getting a degree three decades ago. “The decision not to attend college for fear that it’s a bad deal is among the most economically irrational decisions anybody could make in 2014,” says The Times.

But the Thiel Foundation isn’t drinking that Kool-Aid and, in fact, hopes to eventually refute the assertion with data it collects through its “20 under 20” fellowship. The foundation just selected its fellows for the coming year and Mike Gibson, vice president for grants, says both the number and quality of applicants has risen each year. “High school students are now anticipating this is something they want to do,” Gibson says. “They start working on a business long before they apply for the grant.”

The incoming class of 19-year-olds includes several with a running business, like Vitalik Buterin who is about to release the first version of a platform and coding language enabling broader application of the technology underlying bitcoin. The fellows tend to be tech geeks from the west coast. But the program has welcomed fellows from more than 40 countries including China, Canada, India, the U.K. and Germany.

PayPal co-founder Peter Thiel stirred up a hornet’s nest when he announced his peculiar fellowship four years ago. Calling higher education a bubble, he offered 24 high school students $100,000 each to skip college and start a business. That first class would be entering its senior year now. Gibson says five have given up and gone back to college. But 19 are either working at their own business or have sold it and gone to work for someone else in a related area. “A handful sold for seven figures,” he says. “These kids have more money than me.”

Gibson, by the way, has a four-year college degree. The last part of his statement is one reason the foundation is keen to stay with its program for the long run and generate its own data. Studies that examine the value of college look at all students. The Thiel fellows are a special group. If they were not starting their own business they would be going to college, Gibson says.

They are bright and college-ready but have chosen a different path. They have been handed the funding and they enjoy the mentorship needed to pursue their dream. Among high school students with that kind of choice, he believes the ones who skip college and just get to work on their idea, on average, will have greater lifetime income—especially when you back out the cost of tuition, fees and loans.

The point is that college is not for everyone and some people would be better off skipping it, Gibson says. The 20-under-20 program is creating role models to make the case. Ultimately, it hopes to generate the data to prove it as well.

 

 

 

 

TIME Educational Financing

Only Rich Kids Should Go to College

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Linda Goodhue Photography—Getty Images/Flickr RF

The evidence keeps mounting: college loans are holding back young Americans in unprecedented numbers.

Should only rich kids go to college? It seems like an absurd question. Yet evidence keeps mounting that, financially speaking, if you must borrow to pay for college you might be just as well off skipping higher education and going straight to work.

Some 37% of American households headed by an adult under the age of 40 have student loans outstanding—the highest share ever, according to a new report from the Pew Research Center. Their median student debt: $13,000. College loans in total run about $1 trillion and the Pew findings show that this burden weighs heavily on the finances of young Americans.

Households headed by a young college graduate with student loans outstanding have a typical net worth of just $8,700—a pittance compared to the typical $64,700 net worth of similar households only with no student loans outstanding. But that’s just the start. Those with student loans have total debts of $137,010—nearly double the typical $73,250 indebtedness of those without student debt outstanding.

These differences are far greater than the value of the student loans outstanding and speak to the snowball effect that debt has on many households. The findings suggest that, for many, their debt spiral can be traced to their first student loan. “It may be the case that the burden of student debt makes it more difficult for young adults to gain financial traction in other areas of their lives,” the researchers noted.

Perhaps most interesting, Pew found also that the typical net worth of households headed by a young adult without college debt and without a degree was $10,900—greater than the net worth of college grads that had taken on debt to get through school. Going to work sooner and avoiding the expense of college provided immediate payback. The clear loser in the analysis was the young head of household that took on student debt but never earned a degree. That person’s median net worth was just $1,200.

Richard Fry, a Pew researcher, cautioned not to read too much into the greater net worth of the debt-free non-graduate. “College-educated student debtors tend to have much higher household incomes than those who did not complete college (nearly $60,000 versus low $30,000s),” he said in an email. “The typical benefit from completing college is immediate in terms of household income. But if a young adult has to borrow they will be behind in building their nest egg.”

At some point the wealth gap closes and the larger income of the indebted college graduate offsets the early debt-free start of those who didn’t go to college. But it’s not clear how long that takes and it isn’t the case for everyone, especially in an economic period (like now) marred by young adult underemployment.

Findings like these have stirred a great debate in recent years: Is college worth it? Those who say a degree is not worth borrowing for have found a strong voice in PayPal founder Peter Thiel who established a “20 under 20” fellowship staking promising high school students to a $100,000 grant if they’d skip college and start a company. The Thiel Fellowship is entering its fourth year.

Suggesting that only the rich (or those who get full-ride scholarships and grants) go to college is about as politically incorrect as you can get. I would never take that position. It smacks of elitism and runs counter to the income inequality concerns that have made Tomas Piketty an overnight sensation.

Yet more than a third of young graduates themselves do not agree that their education has paid off, and evidence keeps mounting that student loans are the equivalent of wearing lead sneakers in an economic foot race. At the very least, anyone taking out these loans should understand the full nature of their costs.

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