While millions of students continue to take on billions in debt to attend higher education in America, one economist is reminding everyone to treat paying for college like any other investment.
“We’ve been telling everyone college is the golden ticket, it's the springboard to whatever you want in life,” Beth Akers, author of ‘Making College Pay,' told Yahoo Finance Live (video above). “Not really — it’s an investment, and like any other investment you need to make critical decisions and use economics to make sure that you’re making a choice that’s going to pay off for you.”
One thing is clear: Going to college is generally expensive. The average cost of total tuition, fees, room and board rates charged for full-time undergraduate students in degree-granting institutions in the U.S. has increased more than two times the general U.S. inflation rate in the last 40 years.
Akers advised that prospective students do a cost-benefit analysis to decide where to go to college and, importantly, what to study. To that end, she recommended students make use of the Department of Education's (ED) College Scorecard website.
She also stressed the need to decide a major early — even if recent high school grads are unsure about their future.
“I know it's a big ask... I'm not saying you have to pick a path and stick to it,” Akers said." But I'm saying if you're someone who does not have a huge financial backstop or a trust fund, then you may need to consider that you don't have the luxury of spending $30,000 a year to go discover what your passion is. I wish everybody had that ability, but that's not the financial reality.”
Economists who study the value of a college degree found that the income boost college grads experience from obtaining a degree — or the “college premium” — has slowly been waning after a period of intense growth in the ’80s and early ’90s.
According to the New York Fed's latest data, the unemployment rate for college grads has been the highest for physics majors, mass media majors, and “miscellaneous technologies” majors.
Student loan forgiveness is a 'terrible idea'
Akers also weighed in on the prospect of total student loan forgiveness.
Currently, President Biden is waiting on the Education Department (ED) to prepare a memo with the Justice Department on the president's legal authority to cancel student debt, White House Chief of Staff Ron Klain told Politico on April 1.
Meanwhile, student loan balances increased by $29 billion to $1.58 trillion in the first quarter, according to the New York Fed.
Akers considers student debt forgiveness a “huge giveaway to very rich people,” as her research showed that those who borrow more take on advanced degrees (and hence have the propensity to earn more).
She added that it was a “terrible idea” that would lead to more problems down the line.
“If I see that loans are forgiven tomorrow, guess what, I'm gonna tell people to borrow a lot more,” said Akers. “[And] we're in for the same problem bubbling up again in 10 years — or even sooner.”
Aarthi is a reporter for Yahoo Finance. She can be reached at firstname.lastname@example.org. Follow her on Twitter @aarthiswami.