How to charge for college
Beth Akers, an economist specializing in labor economics and economics of higher education, has written a book on whether college is worth it. His book, Make a college pay, is readable and provides practical advice for families on how to reduce the risks associated with investing in a college education.
Dr Akers argues that a college education is always worth it, but she also identifies several situations where the university sometimes doesn’t pay.
According to Dr. Akers, a college degree is worth it if the lifetime income increase exceeds the cost, after adjustments for inflation, interest payments on student loans and the opportunity cost of students. winnings lost during registration. She writes: “Most people don’t pay too much for collegeâ¦ because, despite the high prices, the extra income offered by a college degree tends to far outweigh the initial cost.”
College graduates not only have higher incomes, but also lower unemployment rates. She says concerns about the cost of college education and the cost of borrowing are irrelevant. If families take into account the risks of obtaining a higher education, the payback period is about a decade, equivalent to an annualized return on investment of 14%.
Dr Akers has worked for think tanks, such as the American Enterprise Institute, the Manhattan Institute, and the Brookings Institution. She also worked as an economist with the White House Council of Economic Advisers and a visiting scholar at the Federal Reserve Board in Washington, DC. She has a doctorate. in Economics from Columbia University.
When the university doesn’t pay
There are several circumstances in which college is not worth the cost.
- The student is not a college graduate. They have the debt, but not the degree that can help them pay off the debt.
- Student takes too long to graduate from college. This increases the cost of college as well as the opportunity cost associated with college enrollment.
- The student chooses the wrong college. Some colleges have lower results, like lower graduation rates and lower earnings after graduation.
- The student chooses the wrong academic major. Some majors earn less than other majors. If you choose a major that doesn’t pay very well, you might not earn more than the typical high school graduate.
- The student graduated, but bad timing affected the value of the degree. This can include moving into a recession or a pandemic.
Some of these factors are in the student’s control and some are not.
How to reduce the risk
There are several ways to mitigate the risk. Some of these approaches are college and major specific.
First of all, do your research before choosing a college. Use the U.S. Department of Education’s College Navigator and College Scorecard, as well as the College’s Net Price Calculator, to get information you can use to assess trade-offs between cost and outcome, including rates. graduation, placement rates and average income after graduation. Each college’s net price calculator can provide a personalized estimate of the actual cost of the college, after subtracting grants and scholarships from the total cost of attendance.
The majors count. A STEM or healthcare degree has a higher lifetime income than an arts, social work, and education degree. College Scorecard provides college and major specific income data. The book also includes an appendix with the average earnings per university major.
Dr. Akers argues that student loans can reduce the financial risk of college education. Paying for college with student loans reduces the need for part-time work while studying. This results in higher grades and graduation rates. Federal student loans also offer several safety nets, such as deferrals, forbearances, income-based repayments, and options for loan cancellation and discharge.
Income-sharing agreements also base loan payments on income, shifting the risk of failure from the borrower to the lender. But revenue sharing agreements can be more costly than federal student loans.
A handful of colleges offer guaranteed income for their graduates.
You can also reduce the risk of earning an all-or-nothing degree by unbundling your education with coding boot camps, skills-based training, and getting your employer to pay for your education.