Skipping College Could Cost You Half a Million Dollars

The past 15 years has been economic rough going and we’ve all read alarming news about jobless, indebted college graduates. Although it runs defiantly counter to decades — if not centuries — of conventional wisdom and a quintessentially American aspiration, it does beg the question: Is college still worth it?

A billionaire’s experiment

PayPal founder and billionaire Peter Thiel quite famously believes the answer is a resounding “no”: College is too costly, rewards conformity and teaches nothing about entrepreneurship. So in 2010, the Silicon Valley legend established the Thiel Fellowships to give up to $100,000 to people under 20 to “stop out of school” and pursue their vocational dreams. In addition to the money, the fellowship now offers retreats, internships and mentors from the industries in which the fellows are interested.

Has his experiment worked? It’s probably too early to judge, and it depends on whom you ask. According to The Chronicle for Higher Education, which published a story on Thiel’s program on Feb. 8, the 83 fellows thus far have raised $72 million in seed money and produced $29 million in revenue. “Almost all of them learned more than they would have in college,” Thiel says. But even Paul Gu, co-founder of online lending company Upstart and Thiel fellow himself, has some ambivalence about it: “Are there alternatives to college? Yes, but you have to work pretty hard. It’s pretty unrealistic that most people would find those things on their own. Most people would be better off going to college.”

So what’s the real answer? Let’s look at some numbers.

Pay gap continues to grow

According to an analysis by the Economic Policy Institute last year, Americans with four-year degrees made 98 percent more an hour on average than those without a degree. That’s the largest pay gap in history, up from 85 percent a decade ago and 64 percent in the early 1980s. Based on this data, a college degree has never been more valuable. And that’s in spite of the very regrettable facts — which have undoubtedly caused the public to look askance at a college education — that the cost of college has risen by almost five times the rate of inflation since 1983 and graduate salaries have remained flat for nearly 10 years. The grim reality is that much of the reason a college degree is so valuable is because there’s not enough graduates and wages for the uneducated to continue to drop.

The negative cost of college

That’s why the college cost we should really be focused on, argues M.I.T. professor David Autor, is the cost of not going. In a paper he published last May in the journal Science (in which he built on the work of economists Christopher Avery and Sarah Turner), Autor calculates that the cost of a college degree is negative $500,000 — meaning that college is cheaper than free because the decision to not get a college degree will cost you a half a million dollars! Autor arrives at this figure by determining the real cost of tuition plus fees, subtracting that from the lifetime earnings differential between college graduates and high school graduates, and then adjusting for inflation and time value of money.

For those paying off their $25,000 in college loans (the average debt among four-year college graduates, according to the College Board), your debt suddenly appears more than manageable.

College is a hard decision

College is a decision that’s really comprised of many decisions. What school should you attend? Public or private? How much debt should you incur? What major?

How do you put a price tag on the intangibles such as making lifelong friends, networking, meeting your spouse, dramatically expanding your experiences and opening your mind to the lessons and joys of history, art and philosophy?

Colleges and careers were not created equal, so you should be pragmatic enough to consider the salary potential of different majors and the costs of individual schools. The research firm PayScale has gathered data on graduates from more than 900 colleges and estimates the financial returns of different degrees and schools. For instance, the average degree from the University of Virginia offers an annual return over 20 years (calculated as earnings minus the cost of college versus the earnings of average high school graduate) of 17.6 percent; Shaw University offers -10.6 percent.

It’s not an easy decision. But in the sobering light of facts, if you’re fortunate enough to have the ability and the means to go, college is really the only decision.

Phoebe Venable, chartered financial analyst, is President & COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.