In 2005, young people (ages 18-25) in the US gambled $67 billion on college, hoping it would allow them to earn more money over their lifetime. Is it a good wager? REEF's economic analysis shows that college is a financial mistake for more than half of American young people today.
The analysis looks at earnings, college expenses, and interest repayments. The effective interest rate on investment for public university is 4.42% and for private universities it's just 1.9%. Most financial planners expect a 7-8% annual return — no one would recommend a 40-year investment at 2-4%.
Exploding college costs (up 35% in the last five years) have far outpaced income growth. Student loans are not eligible for bankruptcy relief. This financial decision lives with you forever. Conventional wisdom tells parents they should push their kids to college — for many young people, this may be awful advice dooming them to a mountain of debt for decades.
--MR
