Daily Aid 34: The value of a college degree, FAFSA EFC

Student Financial Aid News

Kim Clark from US News sent over her new article on the cost of college and what a degree is really worth:

As the price of a college degree continues to rise, there’s growing evidence that the monetary payoff isn’t quite as big as often advertised. The best estimate now is that a college degree is worth about $300,000 in today’s dollars—nowhere near the $1 million figure that is often quoted.

“That $1 million number has driven me crazy!” says Sandy Baum, a Skidmore economist who studied the value of a college degree for the College Board last year.

Baum’s research showed that college graduates earn, on average, about $20,000 a year more than those who finished their educations at high school. Add that up over a 40-year working life and the total differential is about $800,000, she figures. But since much of that bonus is earned many years from now, subtracting out the impact of inflation means that $800,000 in future dollars is worth only about $450,000 in today’s dollars.

Then, if you subtract out the cost of a college degree—about $30,000 in tuition and books for students who get no aid and attend public in-state universities—and the money a student could have earned at a job instead of attending school, the real net value in today’s dollars is somewhere in the $300,000 range, a number confirmed by other studies.

Commentary

I’ve often said that a college degree is like a driver’s license. It entitles you to operate a vehicle, but where you go, where you take it, how fast you get there, and whether it was worth the journey is entirely up to you, degree or no degree. We’ve talked a lot recently about ways to undercut the cost of college with online degrees, CLEP tests, and more, and will continue to research new ways of reducing the overall cost of education until higher education becomes a national priority in the US as it is in other countries.

We also have a new administration under President-elect Barack Obama and the Democratic party coming into office soon. Regardless of your politics, now is the time to speak up, to email, phone, and fax your newly elected or re-elected representatives, from President-elect Obama on down, and tell them why higher education at an affordable cost should be a national priority. With everything going on in the country, higher education can easily find itself without a seat at the table if we don’t speak up and make some noise about why investing in education is a better use of taxpayer money than stimulus checks for HDTVs.

Show your elected representatives the math above. Make it very simple and very clear that if you were to invest $10,000 per student per year for the 4 years they’re enrolled in a public college or university that meets affordability benchmarks (i.e. no tuition increases above core inflation, CPI, PCE, or the generally accepted inflation index of your choice), the return on that $40,000 investment will be an average $20,000 per year in additional taxable income for the remainder of that student’s working lifetime. At 45 years in today’s dollars, we’re asking that $40,000 be spent to earn $900,000 in taxable income, and at a 25% tax rate, that’s an additional $225,000 the government can reel in. The ROI? Spend 1 dollar to earn 5. That’s a pretty good return on investment, if you ask me.

Scholarship Update

YouthLaunch is an Austin-based nonprofit organization that promotes the empowerment of young people through service. Since 1994, YouthLaunch has developed and supported empowering service programs and opportunities for young Texans. The YouthLaunch Scholarship for Outstanding Service is a non-renewable $3,000 scholarship that honors young Texans who lead and serve in their community and who inspire and activate their peers. In 2009, three scholarships will be awarded to graduating or recently graduated high school students who have attended high school in the state of Texas. Scholarship checks will be made out to the college or university of the recipient’s choice and may be applied to any direct education expense, including tuition and fees, on-campus room and board, or books and supplies. The deadline for applications is Feb. 28, 2009.

Details at our free college scholarship search site.

Mail Bag

Jarrett writes:

So I’m going back to finish my degree soon, and filled out my FAFSA recent;y, and it gave me my Estimated Family Contribution. Is that number a dollar amount or a code? Thank you Chris, the work you do is phenomenal!

EFC is indeed a dollar amount, what you’re expected to pay out of pocket or through borrowed/gifted resources.