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Is A College Education Still the Magic Bullet?
The average annual tuition at a private four-year college was recently pegged at roughly $35,000. To put that in perspective, the median household income in the United States is a shade under $50,000. That gap has narrowed significantly over the last decade, as the cost of tuition soared, while inflation-adjusted incomes declined. That schism was one of the biggest complaints leveled by the so-called “Occupy” movement, against a backdrop of shrinking employment and income opportunities for many young Americans.
The decades-long transition from manufacturing work to a services-based economy shows no sign of slowing, and the days of lifelong employment with one company are becoming a distant memory. More to the point, job insecurity and mid-life career changes have now become the norm. This which begs the question: Is a traditional liberal arts college education still worth it, or are young Americans better off pursuing technical training or other non-traditional forms of education? Or, to put it another way; is a higher education still the magic bullet?
Stepping into that breach are for-profit educators, which provide instruction in post-secondary, career-oriented disciplines. Educators under coverage in The Value Line Investment Survey include Apollo Group (APOL), Career Education (CECO), Corinthian Colleges (COCO), DeVry (DV), ITT Educational Services (ESI), Learning Tree International (LTRE), New Orient Education & Technology (EDU), Renaissance Learning (RLRN), and Strayer Education (STRA).
Though for-profit educators are still a relatively small piece of the pie, their reach and influence is growing. Recent data from the Department of Education have indicated that approximately 18.2 million Americans are pursuing a post-secondary education, with about 1.4 million receiving instruction through for-profit institutions. These schools expanded rapidly over the past decade, with some measures putting annual growth at 15% to 20% over that time frame. But is their explosive growth a referendum on the traditional liberal arts education and its shortcomings, or more emblematic of a still-wounded economy?
It’s hard to argue that a college education doesn’t lead to higher incomes over an individual’s lifetime. By some estimates, a college graduate will typically earn $800,000 more than a worker with just a high school diploma, a number often touted by those in favor of going the traditional route. The slow and uneven economic recovery has driven more Americans back to school in hopes of improving their prospects, while raising new questions about whether a college education is still the best way forward.
More recent studies—that account for the cost of student debt—put the differential at a more-modest $280,000 over a lifetime. And even that doesn’t factor in the risk of graduating with substantial student loans during a sharp economic downturn, not unlike what the U.S. experienced at the end of the previous decade. Taking that line of thinking to its extreme, a 2007 New York Times article asserted that over a lifetime a plumber actually earns more than a doctor with a general practice. Although it sounds dubious at first, consider that a doctor typically starts earning later in life, pays income taxes at a higher rate, and her take-home income is sapped by high malpractice insurance. Of course, that reasoning doesn’t factor in the elevated social standing that comes with being a doctor, a sacrifice that most in the field would gladly make.
This brings us back to the potential merits of non-traditional forms of education, such as technical training. Proponents argue that for-profit institutions operate more efficiently, which can lead to lower tuition and fees. Supporters also note that a more-focused course of study may better prepare some students for the real world, providing them with tangible skills and the ability to make an immediate contribution.
But the rapid growth of for-profit educators—and some of the industry’s more-questionable methods—has drawn additional scrutiny from lawmakers of late. Allegations of unethical recruiting practices have dogged the sector, as well as the assertion that graduates are investing considerable time and money to get a degree of dubious value. The industry also been at loggerheads with the government over federal subsidies, with regulators charging that many for-profit schools enroll as many students as possible, regardless of their employment prospects or ability to pay back their loans.
This past summer, the U.S. Department of Education published its long-awaited Gainful Employment report. It stated that a for-profit education provider had to meet at least one of the following conditions to continue receiving federal subsidies: a loan repayment rate by former students of at least 35%; annual loan payments of no more than 30% of a student’s discretionary income; or annual loan payments not to exceed 12% of a graduate’s salary. Though a tough pill to swallow, many critics of the industry had pushed for even stricter guidelines, and schools have until 2015 to meet the new criteria.
So, is a liberal arts college education still the best way to go? While there isn’t a one-size-fits-all answer to that question, it’s safe to say that a degree from a four-year university is not the ticket to career and financial security that it once was. To be sure, getting a traditional education will likely remain the best way forward for the vast majority of young Americans, while providing experiences and growth opportunities that are hard to quantify. But for a growing number of prospective students, going the for-profit route may better serve their needs, and this is especially true for older individuals returning to the classroom after years in the workforce. And for still others, skipping college altogether in favor of technical schooling, an apprenticeship, or on-the-job training may, in fact, open more doors.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.