Despite the rising cost of higher education and what many reports would have us believe, investing in a college education remains a solid, profitable investment.
Students who take out loans to pay for college have debt to repay when they graduate, so their concerns about the cost of a college education are understandable. However, these students have still made a smart financial decision because not all debt is the same – there is good debt and bad debt.
Bad Debt vs. Good Debt
An article published by Bankrate.com, Good Debt vs. Bad Debt, describes the difference between good debt and bad debt. In short, bad debt costs the investor money, while good debt results in a profit.
Bad debt, for example, is paying interest on credit card balances that are not paid in full, or borrowing money to pay for travel or new clothes – there is no financial gain for any of these expenses. “If it has no potential to increase in value, that’s bad debt,” explains David Bach, CEO of Finish Rich Inc., and author of “The Finish Rich Workbook.”
Taking out loans to pay for a college education falls on the opposite end of the investment spectrum. “Good debt is investment debt that creates value; for example, student loans, real estate loans, home mortgages and business loans,” says Eric Gelb, CEO of Gateway Financial Advisors and author of “Getting Started in Asset Allocation.” Investing in a college education is the perfect example of good debt, consistently proving to be one of the most profitable investments available.
A college degree improves the borrower’s long-term financial situation because the value of this education appreciates over time and, in the end, is worth more than the loan. On average, college graduates earn more money and find jobs more quickly than those who only have a high school diploma, with the earning gap between high school and college graduates widening in the past few years.
According to a Pew Research Center report, on average, today’s college graduates, ages 25-32, working full time earn nearly $17,500 more per year than their peers who have only a high school diploma. Over the course of a lifetime, this adds up to a staggering difference in earning potential. This is further evidenced by the Georgetown University Center on Education and Workforce’s 2011 report that suggests individuals with a bachelor’s degree make 84% more than those with only a high school diploma. According to the report, The College Payoff: Education, Occupations, Lifetime Earnings, “over a lifetime, a bachelor’s degree is worth $2.8 million on average.”
Higher Employment Rates
The same Pew Research Center report referenced earlier shows that people who only have a high school degree have a 12.2% chance of being unemployed, a significantly higher rate than college graduates who have a 3.8% chance of being unemployed.
Return on Investment
Return on investment in a college education outperforms most other investment options. A paper published by The Hamilton Project explains that the “average return on a four-year college degree is more than double the average return on stock market investments made since 1950 and more than five times the returns to corporate bonds, gold, long-term government bonds, or home ownership.”
Go to College; It’s Worth It!
Going to college gives people a clear advantage in finding employment, staying employed and earning higher pay. A college education also provides students with the skills they need to learn quickly and adapt to new environments, which will benefit them throughout their careers as they change jobs and navigate their professional endeavors. So, even with the intimidating cost of higher education, today’s college student is making one of the best investment decisions of his or her life by choosing to invest in a college education.