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The Right Investment? Analyzing the Value of Financing a College Degree

Dr. David Mitchell
Dr. David Mitchell outlines the investment costs of a college education before his Economics of Social Issues class/Credit: Scott Harvey

For many of us, the importance of a college education is embedded in our brains early in our childhood. It’s often considered to be a minimum job requirement.  

But does the benefit outweigh the cost of a college education?

“You guys borrow money today for school; four years from now you’re gonna start paying it back…”

That was the question posed one Friday morning by Dr. David Mitchell, an associate professor in the Department of Economics at Missouri State University. He was exploring with his Economics of Social Issues class the possible return on a student’s investment in college. Here, the class is viewing a graph composed by the St. Louis Fed comparing the real median earnings for men by education level.

“What do you kind of notice about the some college and the high school graduate? They’re pretty close, all right? In essence, what a lot of the data tends to show is that if you’re gonna go to college and you don’t finish, that’s really dumb. That’s probably dumber than not having started in the first place… So it’s kind of a, you either go big or you go home. It’s that sort of thing.”

So for those that do go big and complete their degree, what’s waiting for them on the other side? A full-time job with benefits? Perhaps. Student loan debt? More often than not, yes, as borrowing has become a primary way to pay for higher education. Dr. Mitchell says that’s partly to do with the changing landscape of how schools are funded. He’s been studying the impacts that state spending on higher education has had on schools and their students. Whereas state appropriations once accounted for more than 60 percent of a state institution’s budget, it is now as low as 30 percent, he says. And schools will make that up by raising tuition.  

“The schools aren’t necessarily out to make money, the schools are out to keep the doors open, is what it really is. Because when you have state appropriations falling as much as they have in some states, the university can’t function at those low levels of appropriations and keeping tuition at the same rate that it was in 1990 or 2000. They have to raise tuition,” Mitchell says.

That means students are borrowing more, therefore taking on more debt. The College Board Advocacy and Policy Center says that from 2001-2011, total financial aid per full-time equivalent (FTE) student increased by 62 percent.  While those numbers do show an uptick in awarded grants, it also includes a sharp increase in subsidized and unsubsidized federal loans.

According to The Project on Student Debt, a nonprofit, independent research and policy organization, the Show-Me state ranks 32nd nationally in average student debt, based on 2011 figures. For a MSU graduate that year, their debt was just under $20,000. Missouri Southern State University posted a figure of more than $15,000. The average debt for students attending Missouri’s flagship school in Columbia was over $23,000, according to the research firm. For Drury and Evangel, two private schools based in Springfield, debt after graduation was more than $20,000 and $33,000, respectively.

“Definitely gonna pay for it in the short term, but in the long-term definitely worth it,” Juranas says. 

That’s Kohl Juranas’ take. He’s a junior economics major at Missouri State.

“Mainly because if you don’t go to college, chances are you’re gonna have a job you’re not gonna enjoy, versus if you go to college, more than likely you’re gonna have a job that you might enjoy. So I think that non-monetary benefit right there is more important than the debt,” Juranas said.

Juranas is referring to the benefits of college, which according to Dr. Mitchell, fall into two categories. Monetary benefits would mean things like, in theory, a higher paycheck based on an earned degree. Non-monetary, as the professor explains, accounts for things like the knowledge gained in school that creates an educated voter, fulfillment one gets upon receiving an A on a test, or even stress from studying. For Juranas, those non-monetary benefits are worth the price of an education, which he feels will propel him into a successful post-college career.

As the St. Louis Fed explains, if the current data that shows a higher income path for college graduates compared to high school were guaranteed, every student may decide to pursue higher education. So the question becomes, will the decision to finance their education pay itself back? And if so, how long will it take? Dr. Mitchell hopes that through his class, students can better identify the risks and rewards of borrowing.  

“If you think of it as an investment, borrowing $25,000 to get a job that pays an extra $40,000 a year, every year, for the rest of life is a good deal. Borrowing $25,000 to get another job that only adds an extra $4,000 a year from not going to college isn’t a very good investment. So it’s really a question of what type of jobs are going to be available; are these jobs going to be high-paying jobs in the future?” 

But he’s concerned with the shift in businesses choosing to hire more part-time employees than full-timers, and says that may be reason to limit how much you borrow. Mitchell adds that a big factor is where you go to school, noting the return on your investment tends to be greater if a student attends a public school, while his research has found that for-profit, online schools have a much smaller return.

And while schools do work to help students keep their debt low, one local school has been offering the chance for students to graduate debt-free.

“We call it Hard Work U.”

Elizabeth Hughes is the director of Communications at College of the Ozarks. Instead of paying tuition, this private, Christian liberal-arts school located in Point Lookout has full-time students work campus jobs to defray the cost of education. C of O does not participate in any federal, state, or private loan programs, and has earned the top ranking in categories for Best Buy and Students with the Least Debt in the Midwest by US News and World Report. According to Hughes, a low debt burden gives the school’s graduates a chance to immediately pour back economically in the community.

“Buy houses and vehicles; be able to afford graduate school, if they’re wanting to pursue graduate school. So there’s definitely an advantage our graduates have leaving college debt-free,” Hughes said.   

The downside of being one of the only schools to offer such an experience, the percentage of students who are accepted at College of the Ozarks is less than 1 in 10. But the program is worth emulating, notes Charlie Kirk, founder of Turning Point USA, an organization working to educate the public on the dangers of debt, particularly as it relates to students.

At age 19, Kirk is traveling across the country trying to establish chapters in high schools and colleges to create a common voice on fiscal responsibility. While in Springfield recently, he expressed fears that with all the “cheap money” offered by the federal government, the student loan bubble is about to burst.

“The federal government is offering very low interest loans at 3.8 percent, and they almost go predatory to these students. You have to fill out the FAFSA to go to school, right? And then afterwards you get these emails from FAFSA saying, ‘do you want these loans, do you want these loans, do you want these loans?’ And if you love the school that you want to go to it’s very hard to say no. Especially if they just say ‘sign here, pay later,’” Kirk said.  

Kirk added that too many students are studying things that won’t reciprocate in value, therefore having trouble repaying their loans.

“So when we apply that formula over here to these guys, we can kind of get a sense of whether this is gonna be a good investment or not…,” Mitchell explains to his class.

The idea of a valuable college experience, on if you can obtain a strong return on your investment, are the kinds of questions being raised inside Dr. David Mitchell’s Economics of Social Issues class. The course is offered to freshmen and sophomore students, and is perhaps the first time they’re thinking about life after college. According to Mitchell, it’s a good tool for them to consider the probability of paying back what they borrow.