Is college worth the cost?
There is an on going debate in this country on just that question given the skyrocketing costs of higher education and the lingering debt burden which takes years for students to repay. The student who graduated in the class of 2009 had an average of $24,000 in student loans. But that’s just the average. Some students are accountable for sums totaling $100,000. (See: The Economic Agony of Today’s 20-Somethings)
Venture capitalists James Altucher, managing partner at Formula One and frequent guest on The Daily Ticker, and Peter Thiel, billionaire co-founder of PayPal, have both been outspoken opponents of going to college.
From 1958 to 2001, the average annual increase for tuition costs rose between 6% and 9%, according to the student aid website FinAid.org. Student loan rates typically rise at least twice as fast as the rate of inflation.
The average cost for an in-state four-year public college for the 2011-12 year (including tuition, fees and room and board) totaled $17,131, up 6% from the year before, while tuition at a private college was up 4.4% to $38,589, according to the College Board in its most recent report on the trends in college costs for 2011. Public school tuition is rising faster than at public schools due to state budget shortfalls across the country.
As tuition costs continue to rise, both Altucher and Thiel believe there are better options to college that do not cost as much and provide an equal or even greater future benefits. Thiel, who graduated from Stanford University, made headlines last year for offering to pay some of the best and brightest under 20 years of age $100,000 to not go to college and instead start a business. (For Altucher’s alternatives, see: Jame’s Altucher’s 8 Alternatives to College)
Enter Reid Hoffman who is the co-founder and chairman of LinkedIn and a world-renowned entrepreneur. He is currently also a partner at Silicon Valley’s venture capital firm Greylock. He’s falls on the other side of this debate.
“I think definitely a lot of people should go to college, [but] I think the thing is to be thoughtful about it,” says the tech billionaire who, unlike Steve Jobs, Mark Zuckerberg and Bill Gates, did graduate with degrees from both Stanford and Oxford Universities. His advice is to treat your education like an investment and says it is “critical” to consider the “ROI,” or return on investment, one will earn on that degree after graduation. “For colleges, they are very expensive and that is why you have to be serious about what it is you’re doing and think about [whether] this college expense is going to be the one that is right for me.”
Hoffman is also the co-author of the new book The Start-Up of You in which he says it is important to manage your career like a Silicon Valley start-up. He tells The Daily Ticker’s Henry Blodget in the accompanying interview that there are three things “college can be extremely good for.”
#1: A Vast Network: “The network of your allies and the people who give you access to opportunities and all the rest is critical and college is actually a very good time for building that,” he says.
#2: Baseline Skills: There are many basic skills not learned in high school but can be picked up in college. These skills include communication, reading and writing, the ability to learn quickly, critical reasoning skills and how to use new technologies.
#3: Fallback Ammunition: “If you get into hard times [like we are now with 8.3% unemployment]…the college degree is still useful when you are competing against [people with] GEDs,” he says.
Whether you agree with him or not, his advice is certainly something to consider as it appears a student debt crisis may be looming.
In a recent FICO survey released last month, more than two-thirds of risk managers said they were seriously concerned about the debt loads held by students in the country. 67% of respondents believe delinquencies of student loans will rise, up a considerable 19% from the previous survey. FICO provides credit scores used by both consumers and creditors and is widely considered the industry standard. (See: Student Loan Crisis Looms: FICO Risk Survey)
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