A Dose of Financial Reality

Anna writes in:

I’m amazed at how many people who write into your mailbags have enormous student loan debts and mortgages. I know that prices have increased, but whatever happened to just working at your job and using that money to pay for school and for your down payment?

I know how much you like to “run the number,” so I’d like to see the real financial situation of someone my age compared to someone today.

Unfortunately, the vision of someone working at a minimum wage job part time to pay for college or someone having a full down payment in their early twenties is simply not realistic today. The numbers simply don’t bear it out.

Let’s start digging through the data. I tried to provide sources for as much of the information below as I could.

Wages
In 1970, minimum wage was $1.60 an hour. Today, it’s $7.25 an hour. That’s a 353% increase over that period of time, which seems like a fair amount… until you actually start looking at how prices have increased.

What about average wages? I couldn’t find a document that laid out full details on average wages per year, but this document from the Census Bureau, laying out some average wage information, shows that average household income has roughly kept pace with consumer prices.

Consumer Prices
In January 1970, the Consumer Price Index was 37.8. In January 2011, it was 220.223. That’s a 482% increase over the period we’re looking at.

In other words, for every dollar increase in the minimum wage since 1970, the price of an average item has gone up $1.36. Even adjusting for inflation, a dollar today buys less than it once did for low income earners.

So, for a person freshly out of school, the initial income outlook is worse than a fresh graduate in 1970, but after some career advancement, their salaries end up being comparable given inflation.

Education
In 1970, a year of tuition at a public university cost $1,207. In the most recent year of data available, 2007, a year of tuition at a public university cost $11,034. That represents an annual average increase of 6.2%, which, if you applied it to the 2007 price, gives you an estimated 2010 cost of a year of education as being $13,216. That’s a 994% increase in the cost of a four year degree.

So, let’s say you’re earning minimum wage and trying to make it through college.

In 1970, you could work 755 hours at a minimum wage job over the course of a year to earn enough to pay for a year of schooling at a public institution – about 14 hours per week.

In 2010, you would have to work 1,823 hours at a minimum wage job over the course of a year to earn enough money to pay for a year of schooling at a public institution – about 35 hours per week.

In other words, in 1970, you could work a part time job as a cashier or something to that effect and easily pay for college, enabling you to work and attend college without going into debt. In 2010, you have to work a full time job to pay for college, meaning you essentially have to choose between debt and an education or some other difficult plan.

Not only that, a college education is becoming much more of a requirement than it was in 1970. In 1973, the earlierst year that I could find firm data, 72% of jobs available for workers in the United States had only a high school diploma or had dropped out of school. In 2007, that number had dropped to 41%, and future projections show it only going lower. The jobs remaining that do not require a college education are primarily service jobs that do not pay a high wage.

In other words, in 1970, the choice to enter the workforce immediately after high school or work a minimum wage job while going to college was a real choice. Today, it’s not a real choice unless you want to agree to low income for life. You have to enter the costly bargain of secondary education.

Housing
The median price of a home sold in the United States in January 1970 was $23,600. The median price of a home sold in the United States in January 2011 was $240,100. That’s an increase of 917%, one on par with the jump in education prices.

In other words, even after the housing collapse, a home today costs approximately three times as much as a home in 1970 compared to the average wage that a person earns.

The Full Picture
The minimum wage in the United States has gone up 353% since 1970, and average incomes have gone up approximately 500%. In that same span, however, the cost of basic household goods has gone up 482%, the cost of a four year education has gone up 994%, and the cost of an average home has gone up 917%.

In other words, in the eyes of an average worker from 1970 compered to today, the prices at the grocery store have remained largely unchanged, but the cost of an education has roughly doubled (and it’s now required if you want to earn significant money, where it wasn’t in 1970) and the cost of a home has roughly doubled as well.

If you look at it through the eyes of a minimum wage earner from 1970 compared to today, the prices at the grocery store have gone up about 30%, the cost of education has roughly tripled, and the cost of a home has roughly tripled.

Is There A Solution?
Like it or not, students of today, you’re likely not going to be able to follow the path of your parents – and especially not the path of your grandparents. If you want to have a financially healthy life, you’re going to need to keep an eye on every dollar much more than they had to. The ability to sensibly manage your money and make smart buying choices is much more of a requirement than ever before.

Parents and grandparents of today, give those kids a break. They’ve got a much worse financial reality than you did when you walked out of school. They’re facing bigger housing costs, bigger education costs, and a bigger requirement to have that education than you ever did. Don’t compare the path they’re following to the one you’re following. It’s an unfair comparison all around.

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83 thoughts on “A Dose of Financial Reality

  1. Baley says:

    Wow! This is eye-opening. I totally understand it from where I am, though: 27, married to a 26 year old in College still with close to $100,000 in student loan debt, renting as cheaply as we can and with very little hope of buying a home in the next 5 years. It’s fairly depressing.

  2. Kacie says:

    I feel like the education bubble will be next to burst. The 6% + annual increases just plain aren’t sustainable for much longer.

    If I want to save enough to pay for my two children (one is 9 months, the other almost 3 years) to go to a public 4-year school, I’d need to start socking away something like $400/month for each of them. Today.

    WHAT.

    Not realistic, not sustainable. Something’s gotta give.

  3. Adam P says:

    Agree Kacie. It simply doesn’t hold that salaries go up a very small amount (half the inflation rate?) but tuition goes up at 2 or 3 times the rate of inflation.

    The value of an education is beyond financial, but at some point enough people will do the math and look at the cheapest route to a Bachelors or even the tradeschool route (which more people should consider) or community colleges.

    I went to school in Canada but if I was in the States I would steer my kids far away from private universities unless they had massive scholarships that brough the price tag in line.

    On housing, I am living in Toronto and the prices are just disgusting for what you get and go up 10% a year. Wages are flat. Something has to give here too. Either a bubble burst or at the very least a massive halt to the increases. The housing market (mostly condos) cannot grow at this rate without consequences.

  4. edenz says:

    Also note that Trent is only looking at Public school tuition here – not the cost of housing, fees, or books. If the cost of purchasing a house has doubled, it’s likely that the cost of rent has as well. Textbooks have certainly increased, relative to prices in 1970, probably on par with tuition.
    So even if costs for fees and food are the same – that full time job that Trent mentions (35 hrs per week) is only enough to cover tuition – today’s students would have to get paid for >40 hours to afford rent, books, etc.
    Or find a job that pays significantly more than minimum wage. That’s the route I took (and I still graduated with ~$45K of student loans – from a public university that cost 3x the average). Unfortunately, today’s students are disadvantaged in this department as well. My father owns a manufacturing business, and that led me to learn (and get real job experience) with AutoCAD — in the “shop” classes that many schools are eliminating and that university-bound students are pushed away from taking.
    If I hadn’t been lucky to have a path into this highly-valued skill set (I could have made $30K – $40K right out of high school, starting salary), I would not have been able to have part time jobs paying >$20 per hour as a college student. And I would have had a lot more debt.
    This experience also enabled me to pick a lucrative field upon entering college (engineering), so I’ll be able to pay off my student loans with in 10 years of graduation.
    I’ve been extremely lucky – and it should not require extreme luck to be able to graduate from college and afford to have a decent place to live, food to eat, medical coverage, and a little fun.

  5. Vicky says:

    I DID work a full 40 hours a week, and sometimes overtime through college while attending full time.

    I did this in a crappy apartment, ate very poorly, mooched off friends a lot, and almost never slept.

    Still made it with honors, and never missing a day of class – but with a $34K student loan, too….

    Trent, this is an eye-opening post, and makes me not feel like such a failure for busting my butt and still having major loans.

  6. Johanna says:

    How nice it is to see a post with some thoughtful data-based analysis of a real issue.

    That is all. For now.

  7. Matt says:

    The numbers analysis is excellent… very enlightening. Doesn’t necessarily make me feel better though…

    I think the one place where you miss the mark is this:

    “The jobs remaining that do not require a college education are primarily service jobs that do not pay a high wage.”

    I think trades (plumber, electrician, carpenter, mechanic, etc) get a bad rap. I don’t fit in this category, but think it’s becoming an ever-more-reasonable choice for today’s high school grads – all of them, not just the bottom third! Not to mention a good plumber or mechanic (heck, even a halfway decent one) hardly ever lacks for work… while many 4.0 college grads are still unemployed or underemployed.

  8. Sam says:

    “In other words, in the eyes of an average worker from 1970 compered to today, the prices at the grocery store have remained largely unchanged, but the cost of an education has roughly doubled (and it’s now required if you want to earn significant money, where it wasn’t in 1970) and the cost of a home has roughly doubled as well.

    If you look at it through the eyes of a minimum wage earner from 1970 compared to today, the prices at the grocery store have gone up about 30%, the cost of education has roughly tripled, and the cost of a home has roughly tripled.”

    Maybe someone can explain this to me because my mind isn’t working right and this makes no sense. If I’m standing in a grocery store in 1970 and then again in 2011, the amount that the groceries (or houses or education) has increased by has nothing to do with what I earn. How can groceries have increased by 30% to someone earning minimum wage and 0% to a the average person? Aren’t the cost of the groceries the same price in their respective years despite what a person standing in the grocery store is making? What am I missing here? Am I reading something wrong?

  9. moom says:

    This is a great post. Unfortunately the cost of services like education and medicine rises more over time than manufactured goods like cars, clothes, and computers because it is harder to make productivity gains in those service industries. Many manufacturing industries can be automated (and hence less jobs in those industries…). This is called “Baumol’s disease”.

  10. moom says:

    #8 Trent means they have increased by 30% more than what the minimum wage has increased. So one hour of that worker’s time buys 30% less than it did in 1970.

  11. MattJ says:

    Another reason that college costs have increased – students demand a lot more out of them. Does your college need a world-class gym? Multiple very large computer labs? Campus transportation? Security that is independent of local law enforcement? Immaculately manicured campus?

    All of these things cost money, and many potential students vote with their feet when they’re not provided.

  12. kristine says:

    One other thing about college- they require you to have health insurance, and if you do not have it, you have to purchase it from the school. At least at the schools my daughter applied to. 2K a year.

    Her books are a thousand per semester…another 2K a year. She learns better with hard copy books she can highlight, mark-up and flip through, so the PDFs are not for her. She got a full tuition scholarship, but just room, board and books comes to 15K a year! But it is a top tier private school.

    Matt- I agree- colleges act like posh hotels to lure students. My daughter’s meal plan includes made to order gourmet food nightly- it’s like attending a wedding buffet nightly, with a stir fry bar and ice cream station. Living on her own is going to be a rude awakening! She eats better than the rest of the family. I survived college on ramen and peanut butter. Fresh produce was a rare treat!

    Public schools have always been kind of fascist in how they are funded, nothing equal about them. The rise in college costs also will create a class of highly skilled indentured students (due to loan debt), and or make the Professional jobs accessible only to the very wealthy. My kids will only go with scholarships.

  13. kristine says:

    Oh, and…excellent post! The best in a long time.

  14. Nancy says:

    Because I’m a high school teacher I saw intimately how fast the cost of college was rising via my students. My husband and I battened down the hatches 15 years ago, and with our entire family working together toward the singular goal of college, our three children will each graduate from college (all private) with around $20,000 debt.

    Another thing parents should scrutinize is whether the college requires that students live on campus all four years. Sometimes, living off campus can save money. Be sure to inspect housing requirements before signing up!

  15. Nancy says:

    One more thing.
    In 1950 20% of all jobs required a BA or higher, 10% required technical training, and 70% required high school or less.

    In 1998 20% of all jobs required a BA or higher, 70% required technical training, and 10% required high school or less. Source: Iowa Department of Education

    The student that knows their strengths and weaknesses and has a clear view of their career path is ahead of their peers. (And will save money)

  16. valleycat1 says:

    RE housing (after college/buying a house, not college housing) – Also, it seems more 20-something college graduates now buy their first house at the median price range or above. Back when I graduated in the early 1970′s, everyone I knew who bought a house purchased starter homes below the median price – we paid less than $17K for our first home.

    And, boy, do I feel old just having said that!

  17. Squirrelers says:

    Agreed that the paths of college students/new grads will be different from that of their parents, and certainly their grandparents. Things have changed in terms of the economic structure of our society in many ways, including relative costs of certain things versus employement opportunities.

    Change itself is a constant. While much advice from older generations can be very, very valuable AND followed, that doesn’t apply to all of it. Some advice works for different situations, other advice is based on a static situation of days gone by.

  18. jackie says:

    Sam,
    Lets say you want to spend exactly 10% of your earnings on groceries. If you make minimum wage, you can by 30% less than you would have in 1970. If you make median wage, you can buy about the same amount as in 1970.

  19. Steve says:

    One (sadly) overlooked option to pay for an education: join the military. Serve your country for four years, do some growing up and soul searching, then go to school.

  20. Tara C says:

    I worked full time during college and graduated on time in 4 years with no debt… it can be done. But you must be very dedicated and not interested in partying. I spent the entire 4 years either working, sleeping or studying. But it was worth it to graduate with no debt. I cannot imagine the kind of lives people are facing right now with mountains of debt and poor job prospects.

  21. Steven says:

    Good article…despite the spelling errors. Thanks for running the numbers on this. It’s interesting to make these comparisons.

  22. Michele says:

    This is why my husband and I paid for State college tuition, off campus housing, an Albertson’s card we could load monthly from another state, health insurance, vehicle insurance and a car payment for our son for 5 years of college while he worked two part time minimum wage jobs to cover books,lab supplies and any other fees for school. He’s got a degree, a great job with benefits and no debt. Thankfully, he graduated before state colleges jacked up prices and fees!

  23. Jen says:

    I went to the University of Washington between 2002 – 2007. Tuition per quarter went from 1,200/quarter up to 1,600/quarter.

    In the recent past tuition has gone up double-digit percentage points every year. June 2011 it went up 20% for the 2011-2012 school year.

    Washington State has no income tax, just a sales tax (9.8%); and voters rejected an income tax on 200,000+ earners that Bill Gates Sr. championed.

    The school is located in Seattle where you will pay ~800 dollars a month for a one bedroom apartment, or anywhere between 350-550 for a room in a house. The is huge demand for rentals in Seattle.

    Students get a $90 per quarter bus pass, the retail value of it would be almost quadrupedal that price. (It has unlimited face value and works on 3 transit systems).

    Washington State minimum wage is $8.67/hr. It is pegged to the consumer price index and goes up accordingly every January.

  24. Brittany says:

    #8 Sam–The wording isn’t the clearest, but he’s talking about a 30% increase /relative to wage increase/. Basically, for people earning minimum wage, food costs grew 30% faster than wages. However, for “average workers,” their wages and food costs grew at roughly the same rate. Does that makes sense?

    Also, I think a bit of information missing is that it doesn’t take ages and ages to pay off a reasonable amount of student debt. After doing the scholarship/30+ hour work week/put myself through college thing, I graduated a few years ago, with almost exactly the average debt load (~20K).
    I paid off 11K of debt on a 22k salary in 2 years, living in the city (with an additional 9K of Segal award towards my loans–but if I took the higher paying job offer, I would have easily made this up). Continuing to live like a broke college student after college for another year or two has huge benefits. Being debt-free is awesome.

    I have several friends who’ve made significantly more money than me, had lower debt loads, and still have a significant amount of debt. Just because you’re offered a 10-year repayment plan doesn’t mean you have to be “saddled” with the debt for 10 years.

  25. Brittany says:

    Also… a $1000/semester for books? I suggest used books. gettextbooks (dot) com is a great resource.

  26. kristine says:

    Tried the usual used textbook online sources, that one included, but they did not have the correct editions, or were unavailable. Pretty small market- bio-engineering books cost a fortune, and some are brand new publications. But we did have a friend of friend at the school who gave her 2 books “on loan” from the department, so she ended up saving 300. The amount the school estimated was pretty accurate.

  27. Jessica says:

    The first argument that popped into my head about this is the availability of scholarships (and the tools to be able to search for them) that wasn’t available in the 1970s. I’ve read stats about the number of scholarships that are UNCLAIMED each and every year.

  28. Brittany says:

    If it’s such a small market, surely those $150 books had pretty swell resale value, then?

  29. Sam says:

    moom, jackie, and Brittany,

    Thanks for helping. My reading comprehension was low this afternoon. I reread that six times and my brain still didn’t grasp it!

  30. Jules says:

    There’s a great Elizabeth Warren talk on youtube floating around where she parses these numbers even further, and it is appalling. Even worse, the talk is several years old, and uses data up to 2007–the year BEFORE the recession hit.

  31. Tom says:

    Excellent article!

    I worked full time during college and graduated on time in 4 years with no debt… it can be done. But you must be very dedicated and not interested in partying.
    I was an RA in college and used to have a saying for my new freshmen: sleep, fun, and work.. you only get to pick two.

    Between the RA role (small stipend and free on-campus housing), and 2nd off-campus, but very-part-time job, going to a public in-state school pretty close to home, I still graduated with around $30k in loans. Of course 18-21 year old me didn’t make all the best choices (Yes, I’ll take all the loans you’ll give me, exceeding tuition and fees). I also received a $2k per year grant from my state after going to the Financial Aid office when I was going to have a hard time affording college.

    I will also second that as you get more specialized in your studies, used books are harder to come by, and are even more difficult to sell back! …especially if you have a professor who writes the text, which happened to me twice, although once was a reasonably-priced criminal justice book. I still remember getting a ridiculous buyback offer on a $150 physical-organic chemistry textbook because only 10 people take the class per year.

  32. kristine says:

    Brittany,

    I have no idea. We could not find them discounted at the usual online discounters. The only options were incorrect editions, or heavily used marked/up editions that were so far gone as to be useless, or just not there. There is a decent chance these books are kept as references for consecutive college years, and after 4 years of keeping them- the editions are obsolete. I know my daughter intends to hold on to hers as a resource for the full 4 years.

  33. kristine says:

    A lot of the kids at here school buy the downloads for their readers, so there are just many fewer physical books.

  34. getagrip says:

    I’d like to point out:

    a. Private schools can often provide grants/scholarships that will bring your overall costs to the same as a public school that will not provide that kind of money. You may have to enter a specific degree program and likely keep your grades up. But don’t discount them as costing more without applying and seeing the actual offer if the school and program are something you want.
    b. Sometimes you can get used books, sometimes you can’t because they’re not available or you switched courses late, etc. Sometimes the professor, especially in upper level classes, wants you to use their book/materials which just got published. Even with used books you may as well plan on $1000 a semester and count anything less as a blessing. I don’t think my kids have gotten away with under $500 a sememster yet. Then sell the books and get the pitance of cash back if you can.
    c. This analysis also doesn’t count little things like $80 for photography paper for an art class, or an extra $50 in lab fees for a “chemistry for the rest of us” type course, keep an eye out for that when picking electives.
    d. Even if you are a minority or female or both you have to really do your work to get scholarships beyond what may come in a financial aid package. There is a lot of competition out there even for the small ones, and they are often very tailored (e.g. a $1000 scholarship for a female majoring in business who was a member of junior achievers of America).

    As a parent you don’t have to pay it all. Heck, there’s no law saying you have to pay any of it (though the financial aid folks will try to guilt you into it by shoving the PLUS loans at your kids every chance they get). If you choose to pay some of it I suggest starting with something relatively painless like $20-40 a paycheck when they’re born, then adding $5-10 every year to that until they’re ready for college. That allowed me to offer two years of community college and two years of state school free to them. They were also offered trade school or other alternative schooling and they could pocket anything left over. They’ve chosen different and are taking out loans to make that difference up, but the option was there and it wouldn’t have been if I hadn’t saved anything because I couldn’t see saving the total amount.

  35. Geoff Hart says:

    Another good option is to go to school in Canada. No, really. To put this in perspective, top-notch schools such as McGill in Montreal (recently ranked in the top 20 universities worldwide) have annual tuition on the order of C$3000 for Quebec residents. The tuition for non-Quebec Canadians is closer to $6K, but that’s still a bargain compared with U.S. schools. The fee for foreign students is C$15K, much higher, but that’s still much less than most private universities in the U.S. So there are bargains to be had.

    I haven’t researched European or Asian universities, but suspect the results would be similar… plus you get a priceless education in another culture. So don’t narrow your horizons: think about schools outside your home country too.

  36. AndreaS says:

    My son, who is 20, has an unskilled factory job that pays about $14 per hour, and every week works loads of overtime. He lives at home and has almost no expenses. I require of him only that he save almost all of what he brings home. It is unlikely he will go to college (just not college material), but if he was it is clear that within a few years he could have enough saved upfront to pay for a college education. Instead he has talked about saving enough to buy a modest house with cash. If he did that, his life would be forever cheaper. Ultimately this son needs to go into a trade… right now he just feels lucky to have a job.
    No one else has asked the hard question of why college is rising faster than inflation. Logically, if the basic components of of college costs (wages, electricity, construction, food etc) are not rising faster than inflation, then why does college rise faster? The reason is that there is an artificial factor skewing things… easy government loans. Without these loans, market factors would rein in costs. If people can’t afford it, fewer will go, the price will come down. Instead we encourage 18-year-olds to take on these huge debts, when they have no real understanding of how hard it might be to pay back these loans. The price rises just because there is an easy way to pay for it.
    The irony is that one of the reasons more people “need” college, is that everyone else has gone to college. Just to compete, you need to be as educated as everyone else. One of my kids is studying law enforcement. She will need a four-year degree just to compete for a job. After she gets hired, then they send her to police academy for training. In prior generations, a four-year degree was not needed for police jobs.

  37. Roberta says:

    Steve @ #19

    I wonder how many people who advocate military service as a way of paying for college have themselves served or have a close family member doing so?

    My husband served 27 years, I served 22 years, (both Army). Some of our coworkers and friends are still on active duty. Our son enlisted in the Marine Corps after graduation from high school in June, making him the 4th consecutive generation in our family to serve. We have some serious skin in this game.

    For those of you who have not served, the military is not like a job you can quit if you don’t like your boss or what you’re doing. You swear an oath to support and defend the Constitution of the United States against all enemies, foreign and domestic. Some veterans liken it to signing a blank check to Uncle Sam, at an amount payable up to and including your life.

    Up to 75% of the desirable 18-25 year old potential enlisted demographic is ineligible, due to overweight and/or lack of physical fitness, the need to financially provide for dependents (ie kids), an arrest record, physical disqualifications of various sorts or lack of a high school diploma.

    You can’t just decide “I need college money”, sign up, sit in an office for four years and then walk away with a fully funded college education.

    For myself, the greatest reward was working with and for some truly remarkable people who willingly chose to join the 1% in order to allow the 99% to live their lives as they chose. The greatest hardship was attending funerals of those whose check to Uncle Sam was cashed at its fullest value.

    There lots of ways to earn college money. While joining the military is certainly one way to do it, that should not, in my mind, be the only reason.

  38. Amy says:

    I just wanted to say thanks for this post. I was very lucky in having family able to help to pay for my education, but I am constantly aware that so few people these days are that lucky. I believe in trying to be understanding of other people’s circumstances, and I love that this post lays it all out there for your readers to consider.

  39. mary m says:

    I love this post. I’ve seen firsthand how hard some of these young folks are working today, and I dont envy them. At my job I submit finance applications and it is not uncommon for young people to have 2 or sometimes 3 full time jobs while in school. One young fellow had 2 full time plus a part time job and also school. He never has an off day from all 3 jobs on the same day and hardly sleeps. He considered it a day off if he had only 1-2 obligations on a given day. There are a lot of really hard working young folks these days and my hat is off to them.

  40. Jonathan says:

    AndreaS (#36) – That was very well said. I wondered if anyone was going to address the option of delaying college while saving up the money to pay for it. I also wondered if anyone was going to address the reasons (artificially high demand) allowing costs to increase as such a dramatic rate. You covered them both nicely.

  41. Andrew says:

    Roberta–
    Wonderful post. Thank you for pointing out how serious a commitment to the military really is.

  42. Katie says:

    That was very well said. I wondered if anyone was going to address the option of delaying college while saving up the money to pay for it.

    I’m not saying that this isn’t a good option, especially if you’re not sure if you want to go to college or what you want to study. But I’m not 100% convinced it isn’t a wash financially. Maybe Trent could run the numbers. Things are terrible in the job market for everyone right now, but college graduates are still statistically doing better than high school graduates. If you delay college for four years (say) until you have enough to pay for it out of pocket,* then you’ve lost four years of the probable higher earnings you’d have with the degree. Does that pay differential cancel out the interest on the student loans you’re paying by going to school earlier?

    * And, of course, it should be noted that plenty of people aren’t lucky enough to have parents willing to let them stay at home mostly for free during that time.

  43. Courtney20 says:

    Roberta @ #37 – I COMPLETELY agree. I would NEVER recommend that someone join the military (even the reserves) simply for the purposes of paying for their education. Even if you come back unharmed physically, I have seen far too many people damaged psychologically and unable to get the help they need. After five years in the marines and two tours in the middle east, my brother struggles with severe PTSD and substance abuse, has had several close friends commit suicide, and is unable to hold a job, much less attend school.

    I don’t mean to say that everything in the military is horrible and no one should ever join. Some people do have a desire to serve, and I highly commend them for it. I just simply don’t believe that the *financial* benefit outweighs the risks involved.

  44. threadbndr says:

    @Roberta #37, First thank you for your service and pass that on to your husband and son.

    I want to second what you said. Military service is, in my opinion, a calling – like the ministry. And if you don’t feel that calling, please don’t enlist. I don’t want anyone less than 100% committed at my Marine or Soldier’s backs.

    But education benefits are something to consider.

  45. joan says:

    @39 Mary M. Thank you for your comments. We don’t hear often enough about the really great young people.

  46. Jonathan says:

    Katie #42 – It may be a wash financially, I don’t know. Although how many people do you know who manage to pay off their student loans within 4 years of graduating from college? Those who do go to college straight out of high school and manage to get a job in their field straight out of college and pay off those debts within 4 years are probably going to be ahead of someone who delayed college until they could afford it. How likely is that to happen for most people, though?

    Like all debt, taking out a student loan has a risk associated with it. If you fail to get that high paying job right out of college then you’re stuck with a debt that you may not be able to afford. On the other hand, if you delay college until you have saved up the money you do have the option of delaying the start of college if needed. If I was unexpectedly unemployed for a year I’d much rather be in the situation of just delaying going to college for year or two, rather than being a college graduate with a large student loan burden during that year of unemployment.

  47. Finance Nerd says:

    One thing to consider is the argument that the CPI overstates inflation by as much as 1% per year, because it is not calculated appropriately. I’m not going to get into a big debate on whether that’s true, because I honestly don’t understand the details well enough to have an opinion.

    However, if true, it makes a huge difference. The 482% increase in the CPI you mentioned works out to 4.5% per year. If the 1% overstatement is true, the real number is 3.5%. Over 40 years this is a 296% percent increase in costs, which is 60% of the number you quoted. If the overstatement is only half that — .5% per year — costs increased 380% over that time. That is more or less in line with the 353% increase in the minimum wage.

    Point being that small measurement errors over time compound into pretty significant differences when looking at 40 years.

    Also, your comment in “the full picture” mentions costs up 482%, plus school, plus housing, but remember that those costs are already included in the CPI. If you excluded housing and education, the increase would be less than 482% on the rest.

  48. Katie says:

    There’s a risk either way, though; if you delay, you might just be starting a family by the time you go to college, or you’re increasing the chance that parents may be ill and need significant financial support just when you’re starting a career (rather than when you’re established in it). I don’t think there’s a one-size-fits-all answer here – which option makes sense will vary from person to person.

    On taking more than four years to pay off debt, I think it depends – first of all without crunching the numbers (which I’d love to see!), we don’t know whether four years is the break-even point on interest or not for a given person’s situation. It could be 1 or 10 for all I know. For another, we don’t know that it’d take only four years to save up the money for college in cash either. That’s going to depend on a lot of factors. For instance, if your parents were willing to let you live rent free while you saved up the money for college, would they be willing to let you live rent free while you attend college? That’d change the amount of loans you’d need just like it’d change the amount of cash you’d need.

    I guess in the end, for me, it’s like buying a house. If you’re going to be unemployed for a year, you’d rather be in the situation of having an apartment you could downsize or ditch (to couch surf or live with family) than you would having a house you couldn’t afford the mortgage payment on. Is that risk reason enough never to buy a house until you can pay for it in cash? For some people yes, for most people (apparently) no. And college isn’t so different.

  49. Jonathan says:

    “I don’t think there’s a one-size-fits-all answer here – which option makes sense will vary from person to person.”

    I very much agree with this.

  50. valleycat1 says:

    Jessica #27 re unclaimed scholarships – most unclaimed ones are because the qualification requirements are extremely specific. Also, there are tons of really small scholarships (under $500), so a more meaningful # would be the median value of unclaimed scholarships.

    Re military service to get a subsidized education – you should join the military primarily with the intent of serving the country and being willing to go to war. Our county is very poor, and a lot of kids in the past joined up at the urging of the counsellors to get an advance education, only to be shocked & surprised they were actually being called into active duty in a war zone. Sadly naive, but true.

  51. Tonya says:

    I wonder if the cost of housing increase takes into consideration the increase in expectations. Master suites, central air, and 2+ car garages were not the norm in 1970 yet I’m hard-pressed to find a house being built without all those things and more today, even with the housing bust.

  52. Jonathan says:

    Tonya (#51) – In addition to the things you listed one also should consider the larger size of today’s homes. All of the comparisons I’ve seen of present vs historical home prices focus on median prices and fail to compare similarly sized and equipped homes. Its really an apples vs oranges comparison. That isn’t to say that home prices haven’t increased dramatically, because I still believe they have.

    I’d like to see a comparison in the price of an average 1970s home vs the same type of home today.

  53. Angie says:

    I’m so glad Johanna approves of this article. That’s one for the record books!

  54. Jon says:

    In addition to the cost of text books, there are additional digital class requirements that cost as well.

    My wife just recently started back to school for a different degree. A used text book was still $70. However, all the classes she takes are also requiring a subscription to a website ran by the book publisher that contains all exercises and graded homework. The digital subscription is $75 per class! It’s like having to buy 2 books.

    So yes, $1000/semester is not terribly high even with used books, esp. if you factor in multiple books per class or lab books.

  55. AnnJo says:

    Having worked my way through college and a professional program in the 1970s and also purchased a first home during that time, I’d urge people not to leap to conclusions from the data Trent provides. In many respects, that ~ 35 year difference means we’re comparing apples to oranges.

    Today, approximately 40% of college freshmen take remedial courses to overcome serious deficiencies in their K-12 educations, raising the cost to students and taxpayers. Having taught a few community college classes, I can attest that those deficiencies include full-blown illiteracy – the inability to read and write. The concept of remediation was barely known when I went to college, existing mostly for foreign students who needed to bring their English skills up to par, and the idea that someone could graduate from high school and enroll in college without knowing how to read would have stunned anyone in my home school district.

    In the 1970s, the ratio of students who started college to those who graduated was much higher and graduation in four years was the norm. Far more students drop out of college without a degree today, or take more than four years to complete it. Regardless of its educational value to the student, that is bound to cost more to the system.

    At my public university, the average college student in the early to mid-1970s had no phone, no computer (cell phones and PCs didn’t exist) and usually no car. He/she ate at home (whether in the dorm or frat cafeteria or his/her own off-campus housing) 95% of the time; a meal out, even if only a pizza, sub sandwich, or burger and fries, was a once-a-week treat, if that. Whether in a dorm, a fraternity/sorority or an off-campus room or apartment, chances were excellent that he/she shared a bedroom with at least one other student. I lived in all three environments, and did not have my own bedroom until I was a senior. As a freshman, I had a bunkbed in a sleeping room with 10 other women.

    Also, comparing the cost of a median home in the 1970s to a median home today ignores the other differences between those median homes – size, amenities, quality of construction, zoning protections, location in relation to jobs & schools, etc. For example, if the median home in 1975 was 1,200 square feet with zero insulation, and today it’s 2,400 square feet with great insulation, comparing their respective costs to minimum wage is not really as meaningful as it seems.

    Trent keeps trying to argue that young people today have it much harder than previous generations. This is a futile discussion; factoids can be advanced both in favor and contrary to the argument, but actual hardship rarely has much to do with perceived hardship, and relative hardship is impossible to judge.

    Just an example: What is the value of being able to be in virtually instantaneous contact with friends and family and have unlimited immediate access to the information on the Internet – something I could only read about in science fiction when I was in college? Was it a hardship to me that I lacked that?

    If I missed my family, I had to wait my turn to use the one phone in my sorority, or later the one payphone in my dorm, for a call that would cost me twice the price of a meal at the local burger joint. If I wanted to research something, I had to walk a half-mile to the library, during its open hours, dig through card catalogs, fetch books from various floors and spend hours digging, for what is now often a five-minute search online. That was time I could have spent working to pay my tuition.

    Except to encourage self-pity and resentment, what is the point of convincing yourself life is harder today than it was yesterday?

  56. AnnJo says:

    “In the 1970s, the ratio of students who started college to those who graduated was much higher . . . .” Should have said that the other way around. Graduated:started, not Started:graduated.

  57. Jon says:

    @AnnJo,

    Your comparisons of experience/college conditions from your college days compared to now are not equal. Trent only talked about the increase in tuition, not room and board, so your comparison to living in a bunkroom and eating at the cafeteria are not the same.

    Also, just a guess, but I think that digital research is cheaper than maintaining an actual physical library. Why would a University continue to pay for a huge library when students can access the same material from third parties at very little cost to the University (Internet access).

    If I could have saved $50,000 by sleeping in a bunk room I would have. But that still doesn’t impact the rising cost of tuition.

    And just because 40% of college freshman take remedial courses at the increase in taxpayer expense, doesn’t change the fact that it increases the cost of tuition. Whatever the reason for the cost of tuition, the fact is that tuition is MORE! So by purely numbers, it is apples to apples.

    Why is it that previous generations refuse to acknowledge that the world is changing and the world of money is different than it used to be? And in 30 years it will be different than it is now, and kids will have a whole new set of problems to figure out.

  58. Jonathan says:

    “Trent keeps trying to argue that young people today have it much harder than previous generations.”

    AnnJo, do you think that part of the problem may be that young people today have much higher expectations than those from previous generations? The examples you gave seem to support this. As with with housing, is one of the issues with a college education that colleges today are expected to provide a much different experience to a higher number of students than in the past? Unfortunately it is very difficult, if not impossible, to compare the cost of a post-secondary education today with one that from 1970 that is equal in all ways.

    Like I said earlier about housing, this isn’t to say that tuition costs aren’t increasing at a much faster rate than they should. I believe that the price of a college education in the US is much too high. Would the price be closer to the 1970 price, when adjusted for inflation, if expectations were the same as they were in 1970? My guess is that yes, they would be.

  59. Mary Kay says:

    I agree that the cost of higher education has increased at a higher rate than wages. When you talk about the median price of a home I wonder if we aren’t comparing apples to oragnes. Homes have become larger and more luxurious over the years. If someone were willing to live 1970s style the increase might not be so great.

  60. Sonja says:

    Parents – help your child research employers with tuition-reimbursement plans. This can be a huge help. You graduate with a degree, no debt, and a job. I have worked for corporations that offered this and so has my husband. In fact, he has had 3 technicians get engineering degrees and move on to higher paying positions with placwement assistance from human resources. Yes it takes longer this way and you miss out on campus life. But you also get work experience, company-match on the 401k, health insurance, and in some cases you get vested in the pension plan.

  61. Telephus44 says:

    One metric I’ve used to illustrate how college costs have outpaced inflation is tuition costs versus a starting salary. My father attended an engineering college in the late 60′s/early 70′s. At the time, 4 years of tuition cost $10,000 but at the same time, a starting engineer could expect to make $12,000 a year in salary. How many students that attend a school that costs $15,000 a year can reasonably expect to make $72,000 upon graduation? Not many.

  62. Janet says:

    Another source of college loan assistance are from programs such as the Public Health Service Corps. They offer tax free loan repayment money in addition to what the individual earns by working in an underserved area. To qualify for this particular program one needs to be in the medical field -nurse, doctor, social worker, physical therapist etc) I know of loan forgiveness programs for teachers, as well.

  63. Courtney20 says:

    Telephus44 – that is an EXCELLENT metric. And so true. My husband graduated with a computer science degree ($64K) and his starting salary in a programming job right out of college was less than $40K. I think it took him about four years before his salary was above $64K. The downside was that we lived in the DC Metro area; the upside was that he didn’t have any loans.

  64. Josh says:

    A lot of trades earn more than college degree jobs now, unless you are really focused on picking a degree that will pay off, many people would be better off learning a trade starting at 18 now.

    Especially if you have parent’s that will let you stay with them for awhile, many kids could be buying homes for cash in their twenties, at the same time their peers are graduating from college with a lifetime of debt. Talk about a head start in life and towards financial independence!

  65. Becca says:

    I believe that the statistic that college grads earn more than high school grads is not proof positive that college inevitably pays for itself. For one thing the pool of people who go to college is, on average, more self disciplined and smarter… as compared to everyone else. The pool of people who has only a high school degree also includes a high percentage of lazy losers, people with low IQs, mentally disabled and so on. The two groups are dissimilar, and so the comparison is not fair. Surely college teaches about “causation versus correlation,” yet this notion of greater income is perpetuated by the college elites.

    In addition, a high percentage of careers that require college also require that you live in a region where the cost of living is higher. In my rural area I doubt there are many engineering jobs around. One has to go to urban centers for those careers, where the cost of living might be twice as much as where I live. As a result the college-grad income statistics are misleadingly higher, as they may not actually result in a higher standard of living.

    I know everything is not about how much material goods you have, but it is a better measure of the economic value of college. From what I see, I know a lot of people who didn’t go to college who appear to be better off than many college grads I know. Basically I see a strong overlap of the two groups when comparing, say, house size.

    I just think the cost of going to college is now so great, you can no longer assume it will pay for itself. If you are going to take on huge debts, you have to be extremely sure that there are high-paying jobs in the field of your choice.

  66. Steve says:

    Roberta @#37, I am currently on active duty. I joined up in 1989 with the intention of doing my part for my country for four years and then getting out and going to school. Admittedly not an altruistic reason. Contrary to my original plan, 22 years later I’m still in, and love what I do. Your point about the blank check is well taken. I ducked under Scuds in Desert Storm and have been to Afghanistan five times and Iraq three. So I believe I’ve earned the GI Bill and tution assistance that has paid for nearly all of my education that will culminate in a PhD early next year. Patriotism is a noble reason for joining but I’ve met very few individuals in over two decades of service who joined for that reason alone.

    I still say the military is one of the best ways to pay for college. My oldest son was in the Marines for four years and is now in school full time, and my other two are planning to join once they graduate high school. Maybe one of them will decide to stay like I did, but if not he will have earned his college money by performing a service that most don’t want to do. Keyword “earned”, not borrowed. The terms of student loans are stated up front, complaining after the fact about the debt is wrong.

    I’ve done a recruiting tour and with the exception of physical disqualifications most of the reasons mentioned for ineligibility are not show-stoppers, especially not physical fitness. (Why would anyone today not have a high school diploma or GED? Very few valid reasons…) If you apply yourself while in–and the military teaches this–you come out much more prepared for college. I’ve seen this multiple dozens of times with young troops I’ve mentored.

  67. Golfing Girl says:

    Thanks for crunching the numbers Trent. It definitely gives you a better picture of “working your way through college.”

  68. Misty says:

    I’m just curious how these figures change if you only consider the middle class. I have a feeling these averages are skewed by the top earners.

  69. jim says:

    I believe the #1 reason college is costing people more is that government is paying for less of it.

    Government has been footing a lower portion of the total college bill at the university level. In 1984 to 2009 the state appropriations per student went up 3.6%. Spending / student went up 4.4%. The government money didn’t go up as fast as the spending per student. But that 4.4% spending per student is not as bad as the increases we see in tuition. The tuition rate in the same period went up 7.8%. However the tuition rate is only the full sticker price paid by people who get no aid. The actual tuition receipts went up 6.1%.

    Here’s how it happens:

    Lets say that State U gets 70% of its money from the state government and 30% from tuition. The school has 8000 students and a $100 million budget. For 2012 the state says they can’t spend any more cause times are tough and nobody wants a tax hike. But the university has 5% increases in its various costs. So they need another $5 million. They decide to make some cuts and only increase their budget by $3 million. However that $3 million increase is all coming from tuition. But half the students that go to State U are low income and getting lots of financial aid. So that $3 million really comes from the top half of students. That would be $750 more per student. Tuition was $7500 per year but now its going up to $8250 which is a 10% increase.

    At the same time that federal government funded grants have not kept pace with the increases in tuition. In 1980 the federal government grants per student was about $1040 and average tuition at a 4 year school was $804. In 2010 the average grant aid was $6083 and tuition was $7600. Grant aid has not kept pace with tuition.

    Tuition at private universities is a different matter. However tuition for private schools hasn’t gone up as fast. From example from 2000 to 2010 tuition went up 8% annually at public schools but at private schools it went up 5.4%.

    Increased enrollment is also going to cause costs to go up. The # of students has grown faster than the population. There are about 50% more people on campus now compared to 30 years ago. Universities have had to add buildings and expand facilities to handle those students.

  70. jim says:

    #11 MattJ said :
    “Does your college need a world-class gym? Multiple very large computer labs? Campus transportation? Security that is independent of local law enforcement? Immaculately manicured campus?
    All of these things cost money, and many potential students vote with their feet when they’re not provided.”

    I went to two separate public schools in the late 80′s & early 90′s. The first one had all that stuff and then some over 20 years ago so they aren’t spending money to add it. The second college had some of that stuff but not much and was not nearly as nice in almost all respects. Nothing has changed since then. The first school still has all the fancy stuff. The second school still still has peeling paint and out of date computers and no campus shuttle. Tuition has quadrupled at both schools.

    I’m sure there are some schools adding some luxury items to entice some students and that has a cost. I don’t see it happening at the colleges I went to. I don’t think luxury spending has much of an impact on the overall college cost trends.

    People sometimes blame technology spending for the increased tuition costs. They had computer labs on campuses 20 years ago too. But back then the computers cost $2500 each but today a computer is only $1000. Plus today its defacto standard that students have a laptop of their own so theres even less of a need for university computer labs. I mean think, why would universities be building giant computer labs when every student is carrying around a Macbook? Honestly I would expect that technology spending as % of college budgets has gone down in the past couple decades.

  71. Kristina says:

    hmmm – my tuition was 6500/yr and that was from 2000 – 2004. I looked up current tuition rates at my school – and they are charging 23,000/yr for 2011!

    My engineering degree cost about 26000$, of which I recieved 14000$ in scholarships. Then I worked 10 hours a week first year, and topping out at 30 hours/week in my fourth year. My starting salary was 54000$, double what I paid in tution. I guess I had it good, because grads certainly aren’t getting 189000$ to start these days…

    I would never have been able to graduate debt free, and with a house downpayment in the bank with current tuition rates. As far as I know my old job lifeguarding job only pays 5$ (or 1/3) more per hour and tuition has almost quadrupled in four years – that’s insane! It’s getting worse.

  72. AnnJo says:

    @Telephus44, starting engineers’ salaries range between $52,000 and $83,000 depending on specialty area. Once you adjust for the changes in compensation policies, I’m not sure your point is as strong as it seems on the surface.

    Few employers then offered benefits such as disability insurance protection, paid family leave, or were as generous as today’s employers on paid holidays, sick leave, vacation time. What health insurance was offered typically covered only hospitalization and dental or vision coverage was unheard of. There were no 401(k)s and defined benefit pension plans were stingy, often required many years of continuous work for a single employer before they would vest, and offered few or no early retirement options.

    Moreover, employees today have protections barely even thought back then. Race discrimination had only recently been made illegal, and those laws were enforced in only the most egregious cases. Sex discrimination protections were even fewer; newspapers in the late 1960s still advertised jobs under “Help Wanted-Men” and “Help Wanted-Women” columns. Discrimination on the basis of disability was perfectly legal, with no duty to accommodate.

    All those protections carry a price tag from the employer’s standpoint and presumably offer at least that much in value to employees, but are not reflected in “median starting salary” data.

    In other words, assuming that these benefits and protections have value, today’s “median salaries” are not fairly stated in comparison to yesterday’s if we look only at the direct salary component.

  73. Courtney20 says:

    Okay, we get it AnnJo – my generation is just a bunch of whiny bums who will never be as awesome as your generation.

  74. AnnJo says:

    @Courtney20, I do not argue or believe the position you attribute to me. But you do tend to prove my point that a fixation on generational comparisons (by ANY generation) is a breeding-ground for self-pity and resentment.

  75. kristine says:

    Ann Jo,

    I fail to see how making racial discrimination illegal, as a protection, even though it has value, figures into some unseen positive dollar amount paid in wages.

  76. AnnJo says:

    Kristine,
    My thinking was that if you were a member of a racial minority and had just spent $60,000 on an engineering degree, the difference in your job opportunities between 1970 and today would have a very substantial and undeniable economic value. I suppose it could be argued that this would be offset dollar-for-dollar by the loss of advantage by others in the employee pool, so it would be a net wash. So you’re probably right that it should not be considered an add-on to wages.

  77. Robin S says:

    51 and 52 – These things may be true, but that doesn’t mean that those of us entering the housing market want those things. Someone did, I suppose, but now a greater number of homes have extravagant features that I don’t need, and can’t afford.
    We were looking into buying recently when our rent was raised 17% – but couldn’t find a place without granite counter tops, stainless steel appliances, etc. There just weren’t any low-end homes for us in the area we needed to be in to have access to public transit. So, we’re still renting, at a rate 17% higher than last year.

  78. Courtney20 says:

    AnnJo – Well, I don’t believe the position you attribute to me either! Self-pity and resentment? Hardly. We’re actually doing quite well despite the challenges our generation has faced. But we’ve also been blessed to have many things like parents to help with college costs, good health, etc.

    If you don’t want to believe the numbers, that’s fine. But please don’t make it sound like if younger people would just TRY HARDER they could be as successful as the boomers. The world has changed. Yes, in some ways for the better. But not in all ways.

  79. AnnJo says:

    Courtney20, I never suggested that “if younger people would try harder they could be as successful as the boomers.” For one thing, if you read the stats on how much the average boomer has saved up for retirement, you wouldn’t try to measure success by them/us.

    And the starting point of my comment was, indeed, that the world has changed, in some ways for the better and in some ways for the worse, such that making comparisons is, as I put it earlier, a “futile discussion” because “relative hardship is impossible to judge.”

    How you took offense at this is hard for me to understand, since you seem to agree with the basic point.

  80. megscole64 says:

    I’m not saving money for my son to go to college. If he wants to go he will get a job. I worked full time and paid my way through school. It CAN be done. I also got a couple of small scholarships. My debt when I graduated was less than $5k. It took me six years but I did it.

    I also don’t place all that much value in a non-specific degree. i.e. political science (my own degree), history, etc. as opposed to nursing, engineering, doctor. If my son wants to go to school for an underwater basket weaving degree I certainly won’t contribute one penny.

  81. Mircat says:

    Trent, this is one of your best articles yet. THANK YOU. I’ve been so tired of hearing people compare their 1970′s experience to what my hubby and I and our friends just came through, and what our younger siblings are facing. GREAT data and thank you for the gentle reprimand and plea for sympathy at the end.

  82. Kristina says:

    oops – my bad I was reading the international students fees *phew* – my school only costs 7800/year a reasonable rate of inflation over the last 10 years from 5500/year

    Yay – I’ll still be able to insist my kids pay their own way through school.

    And for the record – I’m on the leading edge of gen y, I’m already worth more then my boomer parents, I have more choices, and more experiences and less stuff.

    I will be responsible for my own retirement, I don’t have the pension they had. I have a career that is not stable, and will always be without the secure jobs they had. I have chosen to create my own security.

  83. Beth says:

    RE: “a home today costs approximately three times as much as a home in 1970 compared to the average wage that a person earns.”–NOT true because the average house size has gone up as well. If you are willing to live in the size house your parents bought for their starter home, you will pay less than the median price because that median price is for the larger homes fashionable now.

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