The Case for College and Smarter Financial Decisions
The Value of a College Education
Many younger students today find debt scarier than a low-paying job. But contrary to the prevalent belief that college leads to crippling debt without sufficient return a recent report from the College Board indicates that, on average, bachelor's degree holders earn nearly 65% more per week than those with only a high school diploma.
WGU aims to deliver value to students through lower-cost degree programs designed to get them jobs that make their investment worthwhile. According to the most recent data from College Scorecard, WGU average annual cost is 38% lower and graduates have median earnings nearly 50% higher than the average earnings of grads from other schools.
Making informed decisions when selecting a university and a degree is key to long-term return on investment (ROI). Investing in higher education can yield significant financial benefits that extend far beyond the initial cost of tuition, particularly if students earn degrees through lower-cost, job-aligned programs with proven returns. However, if students over-borrow or don’t adequately consider the potential financial returns of their specific program, they may find themselves in a long-term financial predicament.
College is worth it, but everyone has a part to play in keeping debt low. While some of the ROI determination is down to student decisions, there is much that lies beyond students’ control. Let’s talk about the value of education and the responsibility of higher education decision makers, as well as parents, students, and advisors, in ensuring college delivers value.
Cost Considerations and Return on Investment
The return on investment of a college degree depends greatly on a few key factors. First is the cost of the program, which includes two components:
- Direct cost includes tuition and fees, and institutional housing if you live on campus.
- Indirect costs include textbooks, learning materials, meals, off-campus housing, transportation and other education-related expenses.
Next, consider the many elements that play into a worthwhile return on investment. The ROI of a program is a measure of the point in time when earnings exceed the total monetary cost of your higher education program, as well as the opportunity cost of lost wages during your studies. Programs that provide flexible learning options are more likely to allow students to access education without incurring as many indirect costs.
The Role of Responsible Borrowing
Programs that assist students with financial decisions, such as the responsible borrowing initiatives at WGU, help them borrow wisely. Students apply for financial aid once per year by completing the FAFSA. Deciding how to pay for school has long-term impacts if using student loans. We encourage students to consider all types of financial aid as noted in my previous article.
At WGU, we use a heuristic approach – taking complex decisions and keeping them simple. We make each student’s once-a-year borrowing decision more engaging through a personalized interactive process. Using a gamified approach, we show students their direct and indirect costs for the next year, their estimated grants and gift aid, the amount of current federal student loan debt including debt from prior colleges, how much future debt they might need to complete the entire program of study, and the total projected debt at graduation with the estimated monthly payment using a ten year standard repayment plan.
Regardless of which college a student is considering, we encourage them to take a holistic view of costs and debt before deciding to begin their college journey. We put students in the driver’s seat of their borrowing decisions by allowing them to see real-time debt projections based on their specific situation and elections.
What Can Students Do?
It’s critical for students to make informed decisions and enroll in institutions and even programs of study that lead to the best ROI. Those considering a degree should thoroughly explore College Scorecard student outcomes and use the comparison tool to evaluate for each college of choice by median debt and median earnings of its students by program of study for the respective institutions.
What Can Parents Do?
Save for college – start early and contribute often to tax advantaged 529 savings accounts. If a college financial aid offer includes a Parent PLUS loan – be cautious. While you may borrow up to the full cost of attendance, be frugal and borrow only what your child actually needs. Keep in mind, Parent PLUS is a higher interest rate loan with a 4% origination fee that must be repaid by the parent borrower.
What Can Institutions Do?
To lower student debt, we call on institutions to find ways to reduce academic costs. Many might consider using open education resources instead of costly textbooks. Some might focus on eliminating non-essential programs and/or narrowing in on learning and skills development directly tied to in-demand jobs. Universities would do well to deeply consider individual student outcomes and invest accordingly.
What Can State Legislatures Do?
Encourage family savings with incentives for 529 Day, eliminate duplicative academic programs and student services, and increase appropriations for need-based aid. Eliminate the priority date deadline for state grants in consideration of adult learners and non-traditional students. Recognize the needs of the local skills-based economy and encourage funding from workforce development boards. Adopt the FAFSA completion requirement for high school graduation and require state colleges to send annual debt letters to enrolled student borrowers.
What are Some Good Resources for Learning How to Lower Debt?
There are plenty of resources available for any groups who aspire to lower student debt.
For states, this state-led strategy to enhance degree value may be helpful.
For students, this student loan guidance will be useful.
For all wanting to improve their financial literacy, the U.S. Treasury provides a plethora of resources related to higher education.
