06b. Economics of Education: Crash Course Economics #23. Part 2/2.
Adriene: Thanks Thought Bubble. Okay, so we know that there are significant financial benefits to completing college. But what about the costs? Going to college can be really expensive. Often more than most families can afford. In the US, students have over 1 trillion dollars of debt. That's more than Americans owe on their cars or their credit cards! More students are attending college than ever, and more of those students are paying for at least part of their education with loans. In 2012, almost 70 percent of students took out loans to pay for tuition, and the median amount they borrowed was around 27,000 dollars.
By comparison, in 1993, the median amount students borrowed was around 12,500 dollars. And that's just the median. So even if some of the hand-wringing over the total amount of student debt is overblown, the average student really is taking on a larger burden.
So, this is all thanks to higher tuition, right? Well, not exactly. At four-year public universities, the average cost of tuition, room and board has gone from $10,600 dollars in 1994 to $18,900 in 2014, when you adjust for inflation. The average tuition at comparable private universities has risen from $26,500 to $42,400 during the same period.
But that rising tuition number is the “sticker price” for college – in fact, most students receive very substantial discounts. Students from wealthy families, with not-so-great SAT scores might pay that full sticker price, but once you factor in cost reductions from scholarships, fellowships, grants and other sources, many students pay substantially less. Once you adjust for discounting, the rise in net tuition has been kind of modest.
So, why all the debt? Well, for-profit colleges and universities might be contributing to this. Students at these schools tend to take on more debt than students at public schools or private non-profits. It's also possible that student debt is rising because graduate school enrollment is up. And grad students borrow more than undergrads.
Another reason tuitions are increasing is because the actual cost of running a college is higher than a few decades ago. As some schools compete for students and their money, some of them build luxurious dorms, climbing walls and gourmet dining to attract revenue. Another possibility is that colleges now employ more administrators and pay them a whole bunch of money.
Jacob: So, in cold, hard, merciless dollars, does it make sense to spend – or borrow - a bunch of money on a college degree? Well, it depends a lot on the degree you get, but on average the answer is, yes -- as long as you finish!
Many of the worst student-debt horror stories involve students who racked up large debt, but were unable to finish college. And that's surprisingly common: Every year in the US, 60% of high-school graduates enroll in college, but only a little over half actually graduate within 6 years. That's right: only half. But what about students that don't have the means or the inclination to go to a four-year university? Are they doomed to live in squalor? Well, no, but again better money can be found in careers that require specific training and skills, which can be learned through a community college or through an apprenticeship. The average car mechanic earns $40,000 a year; the average plumber earns $50,000; and the average electrician $55,000. And as more young people opt to go to college and as older people in these careers retire, most economists expect these wages to rise.
So what is the final conclusion? Is college even worth it? Well, I guess in the end, we have to say, it depends. It depends on where you go to school; how much you pay for your degree; and it depends on what degree you get. And, of course, on what you want to do with your life.
Adriene: Education isn't just another thing that you buy. It isn't only about individual gain. There's a social aspect, too. We want everyone to have access to quality education because having an educated populace benefits all of us. Education can also be a powerful tool when it comes to reducing poverty and addressing income inequality, and we're gonna talk about that next time. Thanks for watching!
Jacob: Thanks for watching Crash Course Economics. It was made with the help of all these nice people. You can help keep Crash Course free, for everyone forever by supporting the show at Patreon. Patreon is a voluntary subscription service where you can support the show with a monthly contribution. Thanks for watching!
DFTBA [Don't Forget to be Awesome].
