By Allison Linn Senior writer
updated 8/9/2010 10:31:00 AM ET 2010-08-09T14:31:00

Wracked by recession, choked with debt and uncertain about the future, more Americans are asking: Is college worth it?

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The question is understandable. Private college tuition and fees have risen 70 percent over the past decade, according to the College Board. That is more than twice the rate of inflation. Public college tuition and fees have doubled in the same timeframe.

But while college debt has proven a financial chokehold for some people, a four-year degree is still great insurance, especially in a tough job market: The unemployment rate for people with a bachelor’s degree or higher was 4.5 percent in July, compared to 10.1 percent for those with only a high school diploma.

Perhaps the greatest lesson of the Great Recession isn't that you shouldn't go to college, but that you should approach it like you would any other investment: with caution.

“It’s a very risky investment,” said Laurence Kotlikoff, an economics professor at Boston University and president of Economic Security Planning Inc., which makes financial planning software.

Calculations done by Kotlikoff for suggest that attending a public college might make more financial sense than a private college. Private schools charge $26,300 a year on average, compared with $7,000 for in-state students at public, four-year schools, according to the College Board.

Readers, do you think college is worth the cost?

Using his company’s website,, Kotlikoff calculated how much discretionary income a student would have after graduation, assuming he or she took out loans to fund an education at University of Massachusetts at Amherst, a public school, or private New York University.

The calculation assumed the student earned a business degree, got a job making $65,900 (the median industry salary, according to the BLS)  and paid 8 percent interest on the loans.

After factoring in everything from taxes to 401(k) contributions, Kotlikoff calculated the  graduate paying off the debt from UMass would have $36,515 for discretionary spending. That would remain stable even after his debt was paid off.

The NYU graduate would never catch up. He or she would have $22,128 for discretionary spending at age 22, rising to $35,311 at age 42, when the debt is paid off.

Of course, there are factors that could make the higher debt more worthwhile. Perhaps the NYU graduate would find that degree translated into a higher salary over time, making the extra tuition pay off. But even at the most elite private universities, there are no such guarantees.

Readers, are you working more than one job?

In fact, a small group of economists and others have begun to argue that the investment is, in fact, too risky, and that people should skip both college and the debt associated with it.

In an article in The New York Times this summer, Richard K. Vedder, founder of the Center for College Affordability and Productivity, pointed out that Americans can expect continued strong growth in low-skill fields such as nurse's aides, which do not require a college degree. Appearing on msnbc cable last week, Formula Capital Director James Altucher suggested that parents should give their kids cash (on this page) to start a business rather than sending them to college.

Entry into middle class
In general, however, the financial odds still greatly favor a person with a college degree.

The Bureau of Labor Statistics estimates that median weekly earnings for a person with a bachelor’s degree was $1,025 in 2009, compared with just $626 for those with only a high school diploma.

“A postsecondary education is necessary for entry into the middle class,” said Nicole Smith, senior economist with The Georgetown University Center on Education and the Workforce.

Consider the jobs that the government expects will show the largest employment growth over between 2008 and 2018. The ones that require little if any extra education — such home health aide, retail salesperson, customer service representative — generally pay in the range of $21,000 to $32,000, according to the BLS.

The ones that require a bachelor’s degree, including accountants and computer software enginers, pay two or three times that.

There are also the countless intangible benefits students can get out of college, ranging from  friends and connections to an appreciation of subjects like art and philosophy. Those may or may not translate into a higher salary.

“If you’re going to college only with the idea of improving your occupational standing, you’re going to be disappointed,” said W. Norton Grubb, a professor of higher education at University of California, Berkeley. “There’s a lot about college that really isn’t about occupational benefits.”

High cost of studying
Still, Grubb says that pragmatic planning — especially about where you go and what you study — can make a huge financial difference.

Before signing those student loan documents, students first need to be honest with themselves about whether they have the dedication and drive to complete a bachelor’s degree, Grubb said.

Just over half the people who started a college degree in 2000 completed their degree within six years, according to the Department of Education figures. College dropouts can end up saddled with student loan debt but lacking all the earning power of a graduate.

Second, it’s important to consider the financial implications of where you go to college. Grubb notes that some low- to mid-quality schools have very poor graduation rates, with as few as one quarter of their students actually earning a degree.

What you study also can make an enormous difference.

“If you become a philosophy major and that somehow can’t translate into much income in the future ... the payoff just won’t be there,” Kotlikoff said.

Finally, experts say you should consider very carefully how much in college loans you absolutely need, and how much you can pay out of pocket with a part-time job, family help or savings. Suze Orman, the personal finance guru, recommends not taking on more in loans than you expect to make in your first year out of school.

“You have got to be responsible. If you are taking out a student loan, you have got to know, what will the repayments be? If you don’t think you can make those payments easily, I am telling you, you better think twice,” Orman said in a recent appearance on the TODAY show.

Maybe it's just you
Kevin Hallock, director of the Institute for Compensation Studies at Cornell University, thinks that it is an oversimplification to compare the wages of non-college grads to college grads. That’s because the very qualities that make a person a good college student may also make them a successful employee or business owner, whether or not they have a degree.

“Maybe (it’s) because you’re good at things that people pay for, like showing up on time and completing assignments and being part of some sort of structure,” Hallock said.

Nevertheless, Hallock also believes that college can lead to a job that is more stable, or has better health and retirement benefits.

“I think we have to remember that the payoff isn’t necessarily just the higher wage but a more fulfilling job or a more interesting job,” Hallock said.

Fretting about college costs? Take a break and follow me on Twitter @alinnmsnbc

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Video: Struggling to pay for education?

  1. Closed captioning of: Struggling to pay for education?

    >>> the question being asked by a lot of parents and students these days, how will we afford college ? well, tomorrow gallup and sally mae release their annual how america pays for college survey. here with a first look at the findings is cnbc's sharon epperson . sharon, great to have you here, as always.

    >> great to be here.

    >> the numbers tell the story. 70% of those in the survey agree that a college degree is becoming more important. but still, three-fourths of the same people in the survey don't have any plan for paying for college . and college costs are becoming more expensive.

    >> increasingly more expensive. and what this survey found was astoundingly people are saying that they're paying even more, 17% more, for all of the college expenses than they did even a year ago. they're looking at nearly $19,000 that they're saying that they're paying for college with everything included without financial aid . and that compares to about $16,000 a year ago. now, keep in mind, people are looking at all of their expenses. and they may not be considering the grants and scholarships and things that they're getting. this is a heavy price tag, but they're willing to pay it.

    >> at the same time, to help parents dig deeper to save, you say for people with younger children, they should really consider this 529 college saving plan that we've been hearing about. but why do you say that given that especially as the market has gone down, this can actually take a knock. you can actually lose your savings.

    >> it can take a knock if you have a lot of it in stocks. if your child is 16, 17, even 15 years old, you want to reduce your stock holdings in 529 plan . what the 529 plan does, a lot of folks do it by age allocation. and so as your child gets older, it gets more conservative. make sure that the 529 plan that you're in has 15% or less invested in the stock market as they get to those late teen years approaching college . and know that you can also have that invested just in money markets and cds. it does not have to be invested even in bonds.

    >> and you can have other family members contribute.

    >> that's a great thing to do.

    >> for people who have got kids going into school this fall, you say a lot of them don't realize there's something called a hope scholarship tax credit . what is that?

    >> a lot of people don't understand, that's $2500 tax credit you can get.

    >> how do you get it?

    >> you put it on your federal income tax form. you make sure that you apply for that tax credit . again, that's a dollar-for-dollar credit for tuition, books, supplies. that's something a lot of people forget about.

    >> the only way to get access to federal and state grants and loans is submit what's called a free application for student aid . now, how do you do that? what's the deadline? can that work for this fall?

    >> that's a form, and that's surprisingly, this survey found, one out of four families did not apply for this form, did not fill out this form, thinking that they would not get any federal grants or aid. this is what you need to fill out to get state grants, to get federal grants . it's not too late. normally you really need to do it right after january 1st . you want to make sure you have that all together. but it's not too late to do it now.

    >> for this fall.

    >> there are a lot of programs you can do.

    >> where do you get this form?

    >> you can go online.

    >> where do you get it?

    >> fast fund. f-a-f-s-a.

    >> interest rate on federal loans is actually pretty good.

    >> always do federal loans first. they're usually better repayment programs and cheaper terms. do those first and then do private loans. those are variable loans. that's why you want to do the federal loans first.

    >> there are free searches online for scholarships.

    >> never pay for a scholarship. do there are so many scholarships available there. also also online, buying used books or buying books that are several editions ago. check with the professors, of course, first to make sure you can buy these.

    >> there's also a website to help you learn how to save. by the way, all this will be on our website.

    >> very important to look at that.

    >> sharon epperson , thank you.

    >>> coming up, much more including early puberty after your local news.


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