MSN Money Must Be Out of Their Mind

With the recession leading to limited job prospected and depressed salaries – especially for new grads – the debate over whether a college degree is worth the expense rears its head again. MSN Money recently posted an article outlining their argument (“Is a College Degree Worthless?“).

The author’s argument centers around a comparison between two friends; both of whom have at the age of 18 a lump sum of money with which they must decide what to do. One decides to save the money (by investing in low-cost index funds) and start working. The other applies that money to an education and gets a liberal arts degree. The author goes on to argue that over time, the individual who chose to skip college will end up further ahead financially, while the college graduate will be stuck struggling to pay back their college loan and won’t be able to get ahead. According to his numbers, he’s right, but before we hand him the Nobel Prize in Economics, let’s take a look at his assumptions, and how they invalidate his results.

• The author doesn’t take into account inflation or taxes, a point he freely acknowledges. However, I feel like those assumptions are the least of his problems.

• The title of the article mentions “College Degrees”, but all data points in the article focus on liberal arts degrees. That completely ignores those who get science degrees. While a liberal arts major can expect to earn anywhere from $30,000 to $40,000 at their first job out of college, those getting their B.S. are looking at starting salaries that begin at around $55,000 and go up from there (usually topping out at around $80,000 for petroleum engineers). That additional money certainly makes a huge difference.

• The author ignores other ways that having a job that requires a degree builds wealth. 401(k) matching, health care benefits, pensions and bonus programs are all non-salary related means of increasing your wealth through your job.

• The author applies the average national savings rate to both individuals equally, when studies have shown that lower-income households save less than higher earners. Over time, that makes a significant difference.

• Many degree-less commentators following the article mention that while they don’t feel like they lack the knowledge to perform certain jobs, their lack of a degree prevents them from getting a foot in the door when seeking out a new job. With each generation of worker increasing the number of different jobs they hold over their lifetime, this is an important idea to consider when debating this issue.

The point the author is attempting to make is not completely off-base, just poorly represented. I’m a strong believer in the idea that you don’t need a degree to be financially successful; I feel that it’s been demonstrated that ambition, focus and determination are much stronger indicators of success than an $80,000 piece of paper. Having said that, the arguments made by the author are fumbling and awkward – the fact that the author completely ignored those getting a science degree is almost enough to laugh off the article in and of itself. However, the author does raise an interesting point. Money should be a consideration when having the college talk. This point would have been much better had the author focused on private vs. public universities (and community colleges) and the costs and benefits of attending either.

Readers, what are your thoughts on this issue?

Michael
Twitter: @michael_dink