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Uploaded:2023-08-22
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C: hey guys it's Chealsea from the financial diet. and this week's video is brought to you by advisor.com. We're more than halfway through the year which means many of us are taking stock of the financial goals we set back in January, including what we can do now to make sure we stay on track through the end of the year. If you've been thinking of utilizing the services of a financial professional, the TFD community has been loving advisor.com. Getting to work with a living, breathing financial advisor has historically been out of reach for people with less than 250 thousand dollars in the bank, despite the fact that many of life's meaningful financial moments happen way before reaching that financial milestone.

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And this week, we are going to answer a question that we get all the time here at TFD which is: Is college a good investment? And similar to your previous video about whether or not AI is going to take over your job, the answer is, it's complicated. Now as many of you know, I actually went to a community college and I don't actually have a college degree and I have been able to make a successful career of myself although I definitely carved out a very atypical path that will not be available to everyone. But I also really acutely remember what it felt like to be a young person who was desperate to have "the college experience" and who also felt like a four-year degree almost irrespective of what that degree was in, was essential to having a chance at a different future.

Now when we look at the numbers on average, there is some truth to that belief, but what is undeniable is that the image...

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...that I had about college, both what that quote-unquote "experience" was supposed to mean for me, and what it could guarantee me about my future, was very much the result of hype from the society around me, and also a for-profit college and loan industry that utilizes these perceptions to justify ever-spiraling costs with ever-diminishing results.

There is a billion-dollar industry built around higher education, from pre-admissions to post-graduate debt collection. And this fever does affect everyone, from rural kids to celebrities. Nearly everyone wants their kid to get into a good college, and almost 16 million students, or nearly 5% of the nation's population, are currently in college.

And while, again, there is some truth to the financial and professional benefits of college, especially for certain industries--and we'll get into that a bit later--what's undeniable is that this explosion in popularity of the four-year college experience is often based on just that: The experience.

So what is that "college experience" that I was so desperate to have as a young person and felt robbed for not having, that again is often used to justify the inflated costs?

So first, to address the costs. A university degree may end being one of the most expensive things you ever purchase, and may or may not pay off. The average cost of attendance for a student living on campus at a public four-year in-state institution is $26,027 per year or $104,108 over 4 years. 

Considering student loan interest and loss of income, the ultimate cost of a bachelor's degree can exceed $500,000.

And that price has obviously skyrocketed over the past few decades, way outpacing inflation--and also the wages that that degree can promise--in part because the experience itself has ballooned well past what it used to be. College is now just as much about the social aspect, the sports, the parties, Greek life--and while, yes, there can always be some benefits to networking that can pay dividends later in your life, the truth is that the majority of the college experience that is being sold as an intrinsic part of the education itself is actually not necessary.

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And similarly for the experience, often college is treated as a kind of logical next-step, or a way to get out of your hometown, or something that you're expected to do because of how your parents or other adult figures in your life will perceive it. College is in many cases as much an idea as it is a practical reality.

And while many industries do require at least a four-year degree to break into them, the financial success that a college degree can imply has diminished greatly over the years. 

Public university tuition has gone up by over 2500% since 1970, while minimum wage has only increased by 350% in the same 50 years. According to the U.S. Department of Labor, the number of hours that a student would need to work weekly to afford in-state tuition at a public university have increased 6x since 1970. A student would only need to work 5 hours per week in the 70s to afford tuition at minimum wage, 13 hours a week in 1996, and now over 28 hours a week in the 2020s, which is nearly a full-time job.

So it's no surprise that nearly 64% of students take on student loan debt for their undergraduate degrees, and with female students the number goes up to 70%. The average debt for a four-year degree is just under $35,000.

And yes, there are things like scholarships available, but for most people, those things will simply not be enough to cover the rising cost of tuition. And when it comes to things that could potentially reduce the cost of college, like say, continuing to live at home and commute, that idealized college experience we talked about is in part designed to make all of the very expensive aspects of college seem essential.

And when it comes to dedicating extra time to working to help pay directly for college instead of taking out debt, if a huge part of the reason that you're going to college in the first place is to get that full college experience, you're not going to want to eliminate all of your free time with which to participate in that experience by working to pay for the school itself.

So in many ways, the "experience" of it all is just as beneficial to lenders as it is to the schools themselves. But as I said, even if we assume that you need to go to college, and that you need to have a full college experience, what that will guarantee you on the back end...

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...financially has changed drastically over the years. The job market in 2023 is extremely competitive. If you're thinking about leaving your current job, well, you're not alone. The Great Resignation may be over, but 96% of individuals polled by Monster.com said that they were looking for a new job.

Job hopping is one of the most consistent ways to secure a higher wage when employers don't give raises to offset the cost of living adjustments. Recent layoffs from prestigious corporations like FAANG, other tech companies, and the financial sector have reintroduced hungry, competent, and talented individuals back into the job pool. You'll have to compete with those people, especially if you're looking for jobs in metro areas. 

Realistically, though, recent graduates have to fight for entry-level positions at low starting wages. And worse yet, companies may require minimum experience, which can be hard to attain if you didn't have an internship or other learning opportunity before entering the job market. However, not everyone gets a job after graduating. Texas A&M, the largest public university in the country, says only 82% of graduates have an offer or are pursuing higher education after graduation.

Those numbers mean that roughly 1 in 5 students are scrambling for a job, and no one wants to think that they could be part of that statistic. And many jobs will want a bachelor's, and some now require a four-year degree at minimum plus some kind of experience, which begs the question of: Will you be able to get into your chosen field with a four-year degree, when it's no longer an advantage, but a minimum requirement?

Whether or not a four-year degree will actually make you competitive, and again, we're talking about entry level jobs where wages have been stagnant while the cost of the degree to get there has risen, will depend--among other things--on the type of industry you're in. But especially if you're looking to pursue a more creative or competitive field, the reality is that quote "dream jobs"--if they even do exist--rarely pay enough to afford being financially independent.

A common American dream is "moving out of your parents' house and making your own way," but the reality is that a third of millennials still live at home. And the largest public university in the country publishes salary surveys. These salary numbers are self-reported, so take them with a huge grain of salt, but numbers with a reasonable standard deviation will give you an idea of how much recent graduates are making. Many extremely common majors...

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...are only averaging in the $40-50,000 a year range, but what's more important is looking at the minimum salaries, because those are often the entry-level jobs that recent grads have needed to take to get their foot in the door.

In general, based on the industry you're looking at, the type of job you'd be qualified for, the ranking of the school from which you have your degree, the degree itself, and the overall competitiveness of that particular job market, it is possible to start making educated guesses about the actual value and potential return-on-investment of a given degree. For example, it shouldn't be shocking that, say, an art history degree from a middle-tier college is probably not going to have as high of a chance of return-on-investment, especially if that was an expensive private school, as a degree in finance from a top-ranked school.

But part of the reason that college has so many young people in a growing choke hold around not just their finances, but their perceptions of what is necessary to make it in the world, is because of our increasing dismissal of things like trade schools. So trade jobs have expanded greatly over the past few decades. And yes, the stereotypical careers that automatically come to mind, like plumber, or electrician, are still options and can be very lucrative. But there are plenty of jobs in both white and blue collar sectors that only require licensure or a small amount of school.

Better still, many of these may have an on-the-job training option that allows you to obtain everything you need, whether it's experience or a license. Truck driving companies have provided CDL training for ages, but these days, it includes jobs like realtors, personal trainers, and medical records keepers.

If your interest in the medical field was piqued by the pandemic, there are a variety of trades that have relatively shorter paths to certification and employment, such as nursing, medical records specialists, or dental hygienist. Some employers may offer tuition reimbursement or career training/specialization as a perk, though make sure you do get this in writing.

Tuition reimbursement is still somewhat uncommon, but may become more prevalent as student loans come out of pandemic forbearance. And trade jobs can offer stability, as they depend on evergreen services; people aren't going to stop buying houses, clogging toilets, or getting their teeth cleaned. Overall, the trade sector is expected to grow because...

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...there's a shortage of skilled tradespeople currently, largely because society has funneled students straight into college when there are other options available.

In general, the question of "is college worth it?" is impossible to answer in a black and white way. The answer, realistically, is yes for some, no for others, yes for certain schools and degrees, no for others, yes for certain jobs, no for others. But what is undeniable is that the cost of college, and especially this this inflated "experience" that we associate with it, has gotten completely out of step with what that college degree is actually worth. 

For example, I did not end up going to the school that I thought I was going to transfer to, George Washington University, and having that "dream college experience" in DC that I thought I would. Instead, I moved abroad where I was a nanny and tutored English, while going to school in France where the cost of university is about the cost of community college here. Traveling, working abroad, moving across the country, joining volunteer organizations, WWOOFing, there are endless and much more cost-effective ways to have the kind of experiences that we're often thinking about when we think of "college experiences": Adventure, meeting new people, learning new skills, trying new things, and generally getting outside of the person that we were in our hometowns.

The idea that you can only get this experience by going to a four-year school and living on campus and participating in all of the activities provided to you isn't just wrong, it's also a very clear lie that is being sold to young people in order to maximize profit. And again, as more young people are being filtered directly into college, we're not only losing out on a lot of important tradespeople, we're also saddling entire generations with massive debt for degrees which don't really mean much at all anymore. 

If you are considering getting a four year degree, my best advice is to do everything you can to minimize the cost of that degree, including doing a few years at community college and then transferring if possible, considering living off campus, working rather than taking out student debt, and maximizing the value of the degree that you're looking to get. Not all degrees are created equal, and not all...

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...job markets are going to be as easy to graduate into. While I definitely regretted not having that college experience at the time, one thing I can say is that having gone through my adult life so far without having student debt has been one of the greatest gifts I could possibly have given myself. I didn't miss out on any adventures, I just had so many other amazing adventures, in part because I wasn't burdened down by that debt. 

As always guys, thank you for watching, and don't forget to hit the subscribe button and to come back every Monday, Tuesday, and Thursday for new and awesome videos. Bye!