November 17, 2021

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Economist Beth Akers insists she’s not a college debt crisis denier. College is expensive — more than double the cost today compared to the 1980s. And too many students pay too much for it, she said, not only in relation to what they can afford now, but also to what they will earn after graduation.

But the “crisis,” she said, isn’t really a financial crisis for most college graduates. In fact, those experiencing the most trouble paying off college loans owe an average of only $5,000 and enjoy relatively low interest rates.

Akers is a senior fellow at the American Enterprise Institute, where she focuses on the economics of higher education. She said the real crisis is that too many students and families fail to do the math and make data-informed decisions about college based on its financial risks versus its rewards — a problem she explores in her new book, “Making College Pay.”

Akers talked with Ruth Watkins, president of Strada Impact, in the latest episode of Strada’s “Lessons Earned” podcast, and offered advice for students and those guiding them as they decide where to apply, what to study, and how to make the most of their educational investments.

Here’s what Akers recommends when considering the return on investment of college:

Separate your college choice from your identity.

“It’s OK to be more practical about this decision in a time when everyone else is being really, really romantic about it,” Akers said. In recent years, students and parents have faced increasing pressure to announce each college application and acceptance on social media and publicly compare notes with other families. Many high schools eager to celebrate their students’ accomplishments will host college acceptance rallies in the school gym with seniors showing off their college gear and sharing their choices with the whole school.

“I mean, this all sounds very glorious and wonderful, but it also puts a romance on the issue that I think takes away the permission for families to be really practically and financially oriented about this decision,” she said.

Do the math.

Students need to go into the college decision-making process with their eyes open to the fact that this is a financial tradeoff, Akers said.

“You’re going to think about spending some money, and you’re also going to think about what that money that you spend is going to get you. And to me, that’s the simplest framing of this question,” she said. “The idea of a tradeoff is something that we’re comfortable with in all other aspects of our life, right? We do this all the time, but we don’t often give people permission to think of college in such simple terms.”

Rely on the data.

Education consumers are becoming much more savvy investors, in part because of tools like the College Scorecard, an online tool created by the U.S. government to help students compare higher education institutions in five areas: cost, graduation rate, employment rate, average amount borrowed, and loan default rate. Akers said the scorecard was “a fantastic improvement in the ability to empower students to make decisions for themselves.”

Demand transparency about what a particular college will cost versus how much graduates will earn.

“I’m not saying that everybody should go find the highest-earning schools, the highest-earning major, and then gun for that. That’s not at all what I want to happen,” Akers said.

But if they decide to enter a lower-paid profession such as teaching or social work, “we need to be honest with people about what lies ahead for them. … I don’t want to fool anybody into thinking that going to an expensive private college to then be a teacher is a lucrative path or a path that offers a high ROI.”

Consider alternatives to traditional two- and four-year higher education institutions.

Exploring providers that offer lower-cost online education, short-term boot camps, or credential programs may offer students a clearer and faster path to well-paying jobs that are available right now, Akers said. And for those who want to continue their education, colleges and universities increasingly are recognizing those credentials and awarding college credit for them.

Traditional institutions also are learning from these programs, especially how to build the strong connections to employers that students value. “It seems there has historically been a disconnect between institutions and students and that students are overwhelmingly looking for a job and institutions are overwhelmingly looking to educate the future leaders of tomorrow, to be the global citizens of blah, blah, blah, blah, blah,” she said. “I don’t think all institutions need to become just job-training programs. But I think that a lot of institutions would be able to better serve their students if there was more of a focus on making connections with the workforce.”

Finish what you start.

Economists have been saying for decades that college is “worth it,” Akers said, with a 15 percent return on investment for bachelor’s and associate degrees. Some studies demonstrate that it’s an extra $1 million in lifetime earnings for bachelor’s degree holders.

“The whole premise here is that you borrow and make an investment, and it’s an affordable fee to repay those loans because of the bump in income that comes from completing a degree,” she said. “But we know that half a degree does not get you half of the earnings bump that comes from having a degree. In fact, it gets you pretty much nothing at all. So you can very easily rack up debt that would get you halfway through a degree and have none of the additional earnings that would make repayment of that debt affordable.”

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