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Students throw their mortarboards in the air during their college graduation.
Here's a strange yet useful report, from the LA Times' Money & Company blog. Sarah Millar, "now gainfully employed as a research analyst at ConvergEx Group in New York," but a recent graduate of Trinity College (class of 2011) has produced, all on her own, a report analyzing whether college is worth the increasingly higher price.
I can't track down the actual report, nor determine where the LAT got it, so I'll have to trust them on this one when they excerpt Millar's conclusion: "The bottom line of this analysis is that college pays, literally and figuratively," Millar writes.
Money & Company indicates that Millar has researched all the right government and private sources. Millar's LinkedIn profile does indicate that she's been working at ConvergEx for a few months, so it's safe to assume that she's at least somewhat trained in data analysis. Bit before landing the job, she labored as a manager at something called Johnson's Popcorn. I'm going to assume it was part-time and summers.
From what I can gather, ConvergEx is part of the Bank of New York Mellon, which is a private bank and also an investment bank. It looks like ConvergEx operates a technology platform to broker derivatives trades. For the record, derivatives are financial instruments that are based on an underlying asset, like a pool of mortgages. They are often used to reduce the risk associated with the underlying asset and can be traded like any other instrument.
They were also right smack dab at the center of the financial crisis, when it was realized that billions in derivates based on subprime mortgages were far, far riskier than investors had been led to believe.
So Millar parlayed her investment in Trinity into what is probably a pretty high-paying entry level Wall Street-ish job. I'd estimate something between $75,000-100,000.
Of course, prior to that, she was taking classes and selling popcorn. So I guess I'm wondering why the the LA Times is citing her report on the cost of college with no links to the actual report or any of the data sources.
That said, her argument seems basically sound. Although it's worth taking with a grain of salt. Millar did, after all, did commit plenty of money to attending a fairly elite college.
Millar spent roughly $20,000 per year in tuition to graduate from Trinity, excluding perhaps $30,000 in total boarding costs. There may or may not have a been a mix of loans, financial aid, and scholarships in there. Her report, as referenced by the LAT, concludes that it was all worth it:
The advantage of college shows most clearly in the vastly different unemployment rates of the two groups: 4.4% in November for collegians compared with 9.6% for those with only high school diplomas (and an abysmal 13.8% for those who never finished high school).
Over 40 years, the college graduate's earnings would top that of a high-school counterpart by more than $1 million. Financially speaking, college is worthwhile as long as the total four-year cost is less than $715,000, which, at least at the moment, it is.
We might want to rule out the unemployment-rate argument, as people without college degrees have been disproportionately affected by the economics downturn, due mainly to the fact that they worked in construction, which was decimated by the bursting of the housing bubble.
That $715,000 figure is an eye-popper, however. It implies that college is absolutely worth it and will be for decades to come.
Of course, a bigger issue is how college gets paid for. The question of whether it's worth it is based less on income expectations — going to college just about anywhere and majoring in something marketable will get you a starting salary of about $40,000, according to this data cited by the LAT — than it is on debt-to-income ratio and what going to college ultimately costs in both interest on student loan debt and delayed economic activity, such as homebuying, and for wont of a better term "grownup activity" such as getting married and having children.
Not surprisingly, big-name schools reward graduates with higher starting salaries than lesser-known institutions. Millar says that students need to take this into account when making college decisions. But they also need to do some math on the debt. If they plan to live somewhere that has a modest cost of living, taking on tens or even hundred of thousands in debt might not make sense. A $40,000 starting salary might be just fine.
The point is that everyone needs to think about going to college someplace. This is what will keep America competitive globally into the future. So think about where to go and how much it will cost. But don't think about not going.