The value of an education: Spiraling college costs and student debt spark doubts over payoffs

Published: Sunday, May 20 2012 8:00 a.m. MDT

Stevens Heneger is nationally accredited, but arcane regional accreditation rules prevent credit transfer to local state schools. "Accreditation is a morass and a cartel," said Richard Vedder, an economist at Ohio University. "So often students are caught up in accreditation issues they should never be caught up in."

"Investing in education has lifelong benefits for a student because it allows them to earn more over their lifetime than they would have without the education," said Eric Juhlin, the CEO of Stevens Heneger College. "According to salary.com, medical assistants earn an average of roughly $30,000 per year, with 25 percent earning up to $33,000 per year and another 15 percent earning up to $35,000 per year."

Sheperd now earns $12 an hour, which puts his annual gross wages at roughly $24,000 per year. His starting salary is, in fact, equivalent to his total amount of student debt, the ratio that financial aid experts view as sustainable.

But while that ratio may be sustainable at median income, those below the median use a higher percentage of their income for basic necessities, something the federal government recognizes. Federal loan borrowers are eligible for income-based repayment plans, for which Sheperd likely qualifies. These loans are subsidized by the taxpayer and forgiven after 25 years of very low or even no payments — heavily subsidizing the already subsidized loans.

Leaving Lake Wobegon

With taxpayers on the hook, bang for buck becomes a collective concern. "We know that one-third of people overall with college degrees are in jobs that don't require them," said Neal McCluskey at the libertarian CATO Institute.

According to the Bureau of Labor Statistics, McCluskey said, only three of the fastest growing job categories projected for the next 10 years require a bachelor's degree, and in fact 23 of the 30 require no more than a high school diploma. "We are telling everyone to take out big debt for post-secondary education, while the BLS is saying most new jobs require only on-the-job training," McCluskey said.

These jobs pay below the median wage, as half of all jobs do, give or take. "It's like Lake Wobegon," said Mark Schneider, referring to Garrison Keillor's fictional town where "all the women are strong, all the men are good looking and all the children are above average."

Schneider said that often dialog on post-secondary education seems to buck against statistics. "I hate to say it, but most people are average," he said. "While our goal should be to get more people post-secondary schooling, we need to think more carefully about results."

Schneider's goal is to use data to make that rethinking easier. The data drawn from the new gainful employment reports and Schneider's efforts to tap state college and employment data are early steps in what could become a revolution in post-secondary education. The results could allow parents and students to get into their careers more quickly and with less debt, while allowing more focused preparation and guidance for those most at risk of excess debt and default.

To borrow or not?

Financial aid can be daunting to many prospective students. Mark Schneider of American Institutes for Research suggests four things to consider before taking on any student debt.

1. What is my likelihood of graduation? The national average of graduating in a four year program is 57 percent, but success rates vary widely from school to school and based on life circumstances. Six-year graduation rates for four-year programs at for-profit schools is just 22 percent, according to the Department of Education. Before you contract debt, know the odds and ask yourself why you expect to beat them.

2. What am I really going to have to pay for this? There may be huge discrepancies between sticker price and what you really end up paying. Some private schools offer massive financial aid, routinely discounting their sticker price. Others offer very little. Consider cost-of-living as well, and project the totals. Then figure out how much debt you will need to take on to get there.

3. What am I going to earn? Here you have to focus on programs, not just schools. Find out what graduates of the programs and getting what salaries. If you have options, compare program to program. You may find that the more expensive school is not a good value in your field, and the less expensive state school will provide a better return on investment. Or you may consider switching to another field.

4. What is my debt to earnings ratio? Most experts agree that if your first year starting salary equals or exceeds your student debt, you should be able to afford it. As you progress in your career, your salary should climb while the payments stay the same. The caveat on this is at the lower income levels, where a greater share of income goes to basic necessities and where salary climb may not be as steep. A $25,000 salary with $25,000 in debt is harder to handle than $50,000 in debt with a $50,000 starting salary.

email: eschulzke@desnews.com

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