There’s a lie that’s being fed to every young person in America. It’s a lie that’s not good for the individual kid and it’s not good for society. The lie is that we all should go to college and get a degree. This is entirely false, not only should we not all go to college, but we should encourage trade school more than we encourage university. This coming from someone who went to college, had a blast, and doesn’t regret it.
I entered university without a set plan or major. I was open minded and figured I’d use the prerequisite classes to figure out what I should study. I enjoyed a lot of my classes but it was Econ 201 that changed my life. The very first day, Professor Hedrick asked the class what the biggest cost of going to college was. People shouted out, “Tuition!” “Groceries!” and “Girlfriends!” After chuckling, Professor Hedrick shook his head and said, “Those are all wrong answers, the greatest cost of going to college is the opportunity cost.” In other words, the most financially damaging part of college is the money one isn’t making while attending. I knew then that I wanted to learn more about economics, particularly opportunity costs. To this day, I make all major decisions by considering the opportunity cost first. Unfortunately, most people go their entire lives without understanding opportunity costs; certainly most 18-year-olds don’t.
We’re sold this idea in high school that you make more money when you go to college. We’re shown a chart (like the one to the right) illistrating what a high school grad vs college grad make over their life. Those charts aren’t wrong: a college grad will make more money than a high school grad. What those charts don’t show is net worth throughout your lifetime.
There is a shortage of trade workers in America. “Blue Collar” jobs that pay well sit vacant while high school graduates rush to get an art degree. There are roughly 30 million jobs in the United States that pay $55,000 or more a year and don’t require a bachelor’s degree. These jobs include construction, plumbing, lineman, or my personal favorite, farriers (horse shoers) who make on average a whopping $92,000 a year. More than the average college graduate’s peak salary of $84,500. A $55,000 yearly salary may not seem much, but considering the avoidance of debt and money made during the average 5 years and 1 month it takes someone to earn a bachelor’s degree, it’s significant. *For examples in this blog average electrician will be used as comparison to the average college graduate because the average electrician salary is around $55,000.
For those who aren’t mathematically inclined let me put it this way; the average electrician has the opportunity to have about $30,000* in retirement in the same time the college grad has no money in retirement and will owe roughly $120,000* in total for their degree. Quite the difference. Because of the ever-increasing cost of college, it is estimated that students graduating in 2015 or later will have to push retirement back to 75. Not the case for the average electrician.
Given current average rates of return (6%) and average student loans, the most significant difference between a college grad and tradesman is not money made but rather money saved. An electrician and and college grad will net $1,000,000 in combined lifetime earnings and retirement savings at essentially the same time – 50* years old for the electrician, 49* for the average grad. Where this gets deceiving is that at that same age, (50) the average electrician will have roughly $375,0000* more in retirement savings than the average grad. The electrician has been saving for 32 years now, at a 15% recommended rate of savings they’d have almost $600,000* saved by age 50. By age 58* they’d have $1 million in retirement savings and $1.5 million by 64*.
The college grad starts saving later and is hindered by loans. On average, graduates with debt are putting 5% of their paycheck or less into retirement, nowhere near the 15% – 20% recommended. Because college students are now taking 20 years on average to payoff debt, recent graduates can expect to have the minimum $1 million for retirement at age 70*. Around age 76 is when $1.5 million in retirement would accrue.
According to data from Sallie Mae, 42% of student debt belongs to parents. For simplicity’s sake, calculations in this analysis were done with students assuming all debt responsibility. Ultimately, the total time spent and cost of interest on debt in this analysis is accurate, it’s just frequently split between parents and student instead of all on the student. More on parent college contributions later. For a full breakdown of how lifetime earnings and savings accrual were calculated click here.
In lifetime earnings, yes, a college graduates get bigger checks than the average electrician. That picture is the one painted in our mind. The first chart is all they show us, what they don’t show us is the good pay combined with retirement potential that a trade-skill can provide.
The data on college debt can be pretty confusing and misleading. Reports will tell you graduates average $30,100 in student loans. While this is a large increase from years past, it still doesn’t seem that bad, but I couldn’t figure out where they were getting this number. School is now costing on average $16,575.75 a year but is increasing at a rate of 2% per year. So the average five years and 1 month of schooling should cost around $120,000* after accounting for the average 28% covered by scholarships/grants according to Fannie Mae, $167,000* before scholarships/grants. An average of $30,100 in debt would mean 54% of college costs are being covered by something other than student loans and scholarships/grants, which didn’t seem right to me. Then I realized the flaw in the $30,100 figure. It does not account for debt held by parents or non-student loans. It also doesn’t account for cash paid from family or personal savings which, albeit isn’t debt, but certainly worth considering.
As I put the pieces together, it started to make sense. Out of the $167,000* it costs to get a degree, 28% is covered by scholarships/grants, 25% is covered by the student (most likely a combination of loans and a part-time job) and 47% is covered by parents (most likely a combination of loans and savings). Of course the $120,000* cost of school after scholarships/grants isn’t the actual cost, after interest the total amount paid in one way or another for a bachelor’s degree is closer to an optimistic estimate of $160,000*.
The cost to parents who want to help pay for school is not talked about enough. Even a parent who saves early often delay their retirement by ten years. The average student-debt (for their child) held by couples over 60 is $23,500. About 55% of parents have more than $40,000 in student debt and parents average $9,000 in cash out of their own savings to help pay for college. It is not uncommon for college-contributing parents to work into their 70s or retire with half of what their current lifestyle costs. Whether planned or not, parents’ contribution to their child’s education means sacrifice. Funny enough, although not conclusive, there is evidence that children whose parents foot the bill perform worse in school. Even if the debt or cost isn’t technically “yours,” passing that along to your parents isn’t something that most 18-year-olds consider or even grasp.
Speaking of what 18-year-olds can grasp… Why do we encourage young people to decide what they’re going to do for the rest of their life five years before their brains are done developing? A third of students change their major at least once in three years which explains why folks are taking over five years to earn a degree. Not only do many people go back to college to get second bachelor’s degree, but 8% of community college students have already earned a bachelor’s degree. Only 27% of college graduates work in their field of study. Perhaps “older and wiser” people pushing college onto high schoolers is one of the biggest scams known to man? High Schools push college because that is how their success is measured, colleges recruit even those likely to drop because one year of tuition is better than none, and universities push financial aid packages to students who don’t understand them. Universities are embroiled in financial aid scandal regularly. Students graduate college with confusing loans and usually without a job in their field BUT the high school tallied them as a win and the universities will get their money one way or another.
Why is college pushed on high schoolers? That’s what high school faculty know! All your teachers went to college; very few if any went to trade school. Those who haven’t gotten a college degree (teachers’ aides and such) often blame their lower income status on not going to college; very few will say “wish I went to lineman school.” Furthermore, the consensus seems to be that college prep is what high school teachers should focus on. High School teachers are rewarded for and chided for not prepping kids for college.
Recruiters from universities visited my high school but I didn’t hear from a chef or plumber or elevator repairman. Country-wide, 66% of high schoolers immediately enroll in college upon graduation. This number differs wildly from community to community. In my podunk town well under a third of my class immediately went to university – yet high schools everywhere are increasingly tailoring their curriculums to be mini colleges. Furthermore, out of that 66% that do attend college nationwide, 60% of those will end up dropping out. Out of the 40% left, 27% will get a job in their field of study. In short, a measly 7% of high schoolers go to college right away, complete college and get jobs related to their major.
Instead of prepping the majority of students who won’t attend or finish college, High Schools largely focus on college prep. I suppose it’s assumed kids going into the trades will figure it out but the future college students need every resource available. If the focus on college prep over trade prep feels backwards, it’s because it is. You have two years to adjust to college before you pick a major, with countless resources on most university campuses. But we expect the 74%+ who don’t graduate college to immediately adjust to entering the workforce at 18 or 20? Most high schoolers don’t know how to balance a checkbook but damn it they know how to take a standardized test!
Trade school will run you about $35,000 with programs as affordable as $5,000. Additionally, with many trades, apprenticeship is an option eliminating the need for trade school at all. There are also scholarships for trades, shoutout Mike Rowe. When it comes to lifetime net, an electrician has the opportunity to make out significantly better than the average college graduate.
Another point worth making, the initial $50,000 salary right out of college is average. The $120,000* is the average cost of college. That peak salary of $84,500 is average. This means half of all college graduates – 950,000 people each year, make less than $50,000, spend more than $120,000 on college and peak at less than $84,500, maybe not in combination, but still. Are you willing to bet $120,000 that you’re above average?
In review, there are seven things they don’t tell you in high school about college:
- The huge opportunity cost.
- The difference between net and gross pay.
- Which high-paying careers don’t require college.
- What school will actually cost you – beyond the initial cost.
- What your parents are sacrificing when they help you pay for college.
- Dropout rates.
- The reality behind all those averages.
*See spreadsheet here.