Is college worth the money?

By Scott Burns

Does it pay to go to college?

That's a rude question, of course. It's a question parents don't want to ask if they've just written the big checks. Nor do students want to ask it if they've just borrowed the money for their next semester.

If you check the College Board's Web site (.pdf file), you'll find a reassuring study indicating that education really does pay. Without considering the intangibles, the study says each additional level of education draws a higher lifetime income. While the median high school graduate age 25 and older earns $26,300, the median college graduate age 25 and older earns $42,200. That's an annual income premium of $15,500, or 59%.

Not bad, particularly when you consider that the difference also allows you to escape doing heavy lifting.

• Talk back: Do you think a college education is worth the money?

Yes, the college grad will spend years paying off her loans. But eventually her earnings net of loan payments will pull ahead of the high school graduate's. So, case closed. It may hurt to write the checks, or borrow, but college pays.

Well, maybe not.

According to the College Board, it takes 14 long years before the four-year college grad's income, net of loan payments, starts to beat what the high school grad earns. During all those 14 years, college doesn't pay. High school pays.

The real question is not which choice pays on an annual basis, but which choice pays on a lifetime basis? Which choice permits a higher lifetime living standard? That's a question the board conveniently doesn't ask or answer.

Tuition inflation runs deep

The answer depends on the costs of borrowing and the amount you need to cover. Today's student loan rates are really high if you need to cover the full ride. And the price tag for attending college is astronomical. Over the past 50 years, for instance, the cost of going to the Massachusetts Institute of Technology has increased about 20-fold. That calculates to an annual compound increase of about 6.2%, which, in turn, is about 2 percentage points a year higher than the 4.1% inflation rate over the same period.

That's a big difference when you compound it out for 50 years.

Though you need $2,000 today to buy the amount of primo education that cost $100 only 50 years ago, you need just $745 today to buy the amount of consumer stuff that $100 bought 50 years ago. That's quite a difference -- $2,000 versus $745. More important, few workers enjoy lifetime earnings increases that are 2% greater than inflation for their entire working lives. Most workers can consider themselves fortunate if their earnings rise 1% a year faster than inflation in the early years of their working careers.

• Calculator: Are you saving enough for college?

Don't think, by the way, that MIT is a special case. It isn't. The cost of going there has risen pretty much in line with the cost of attending most private colleges and universities. You can't get a better education. My only regret about MIT is that I wish I had been mature enough to spend more time on campus learning and less time in places that dissolute Bostonians will remember fondly -- the long-gone Palace, Golden Nugget and Jerome's in the Combat Zone.

Continued: Some factors to consider

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