Making the Argument for College
Is It Worth the Cost?
According to the College Board, a not-for-profit membership association that represents col-
leges and universities, the total cost of one year of college for the 2006-2007 academic
year is $33,270. This includes the average tuition, fees, room and board at the 500
independent colleges included in the Independent College 500® (IC 500) Index.
Year to year, the one-year direct charges are up 5.74% and it has
averaged annual increases of 5.16% since 1997. Today a
student entering college may expect to pay $136,000
for a bachelor’s degree at the average independent
college. In 15 years, parents of a 3-year-old child
may expect to pay over $300,000 for the same degree.
While the numbers seem daunting, the value of a college education far exceeds the cost.
The financial advantages:
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On average, according to the 2005 US Census, college graduates earned $16,638 more a year
than high school graduates.
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According to the US Bureau of Labor and Statistics, college graduates in 2005 were unemployed at a rate of 2.3% while high school graduates were unemployed at a rate of 4.7%.
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On average, according to the 2005 US Census, college graduates receive an average 3.33% pay increase each year while high school graduates receive an average
3.11% yearly pay increase.
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Over a 40-year career, when considering pay increases
and unemployment rates, a college graduate is expected
to earn $1.47 million more than a high school graduate.
Using 2005 college costs along with the average college
inflation rate, as well as the unemployment rate and average
salary increase, the entire cost of college will be paid back
to the graduate through the difference in salary from the average high school graduate within 7 years. Over a 40-year career, this leaves 33 years of ‘profit’ totaling $1.34 million.
When considered strictly as an investment, the money
invested to pay for an undergraduate degree at the average
private university will return 12.23% a year in increased
salary for the graduate. If your child attends a less expensive, public college, the average rate of return is greater than 26% a year. In addition to financial advantages, education also has marked benefits on one’s quality of life.
Socio-economic advantages:
- According to a Rutgers study, marriages are 13% less
likely to end in divorce when at least one member has at-
tended college, when compared to high school dropouts.
- College graduates are more likely to have health insurance for themselves and their families. According to the 2005 US Census 8.5% of college graduates were without health insurance as compared to 21% of
high school graduates.
- Numerous studies, including a 2002 study
by the University of California, suggest a
relationship between years of education
and increased life expectancy.
Furthermore, college is becoming more important based upon increasing competition
in the workforce. In 2005, 27.6% of adults
had at least a bachelor’s degree. In 1986,
only 19.4% had achieved that education
plateau. In 2005, 35.1% of people age 18 to
24 were enrolled in a college or university.
With all of these benefits, it is easy to under-
stand why most parents want their children to
receive a college education. On June 30, 2006,
according to the College Savings Plan Net-
work, more than 8.8 million 529-plan accounts
were open holding nearly $93 billion in assets.
Both the Montana Family Education Savings
Program and the Arizona Family College Savings Program offer investors tax-
free earnings when distributions
are used to pay qualified higher
education expenses. This makes
the taxable equivalent rate of re-
turn even more attractive than the
nominal annual percentage yield
(APY) of the investment. For
example, the CollegeSure CD paid
a 4.24% APY last year; the taxable
equivalent was 5.89% for families
in the 28% federal tax bracket.
Additionally, Montana residents
can earn up to a $3,000 state tax
deduction ($6,000 joint) for contributions
to the Montana Family Education Savings
Program. Pennsylvania, Maine and Kansas residents now can also receive a State
tax deduction for contributions to either CollegeSure 529 plan offered by College
Savings Bank.
And while rising college costs have parents concerned, this trend does offer an advantage to CollegeSure CD investors whose contributions are indexed to college costs.