Personal Finance

Why a College Degree is Overrated & Unnecessary for Many Americans

Expertise: Mortgages & Creative Financing, Business Management, Landlording & Rental Properties, Commercial Real Estate, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Personal Development
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Having read Sterling White’s critical look at college, “Is a College Education Financially Worth It—Or Is It a Giant Scam? I felt the sudden urge to piggyback on the discussion. As Sterling notes:

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“Education is important, no question about that. However, considering our ever-changing world and new technology, there are many learning options. There are options that won’t leave you with a big lump of debt for the rest of your life.”

I think this is a key observation. Personally, I went to college and learned a few things, but I have applied very little of that to my own career in real estate. I had a lot of fun in college and met some good friends, but financially, it's hard to justify the expense.

Of course, there are reasons to go to college. If you want to go into particular fields, such as medicine or engineering, it’s all but required. So yes, college is good for some people, for sure, but it’s not good for most — and there are other good options available.


College is Often a Bad Financial Idea

The idea that college is financially overrated really hit home for me when I read a thought experiment by financial columnist Jack Hough, which I will quote at length:

“Consider two childhood friends, Ernie and Bill. Hard workers with helpful families, each saves exactly $16,594 for college. Ernie doesn’t get accepted to a school he likes. Instead, he starts work at 18 and invests his college savings in a mutual fund that tracks the broad stock market.

“Throughout his life, he makes average yearly pay for a high school graduate with no college, starting at $15,901 after taxes and peaking at $32,538. Each month, he adds to his stock fund 5% of his after-tax income, close to the nation’s current savings rate. It returns 8% a year, typical for stock investors.

“Bill has a typical college experience. He gets into a public college and after two years transfers to a private one. He spends $49,286 on tuition and required fees, the average for such a track. I’m not counting room and board, since Bill must pay for his keep whether he goes to college or not. Bill gets average-size grants, adjusted for average probabilities of receiving them, and so pays $34,044 for college.

Related: How I Used Real Estate to Pay for My Newborn Daughter’s College Education

"He leaves school with an average-size student loan and a good interest rate: $17,450 at 5%. The $16,594 he has saved for college, you see, is precisely enough to pay what his loans don't cover.

“Bill will have higher pay than Ernie his whole life, starting at $23,505 after taxes and peaking at $56,808. Like Ernie, he sets aside 5%. At that rate, it will take him 12 years to pay off his loan. Debt-free at 34, he starts adding to the same index fund as Ernie, making bigger monthly contributions with his higher pay. But when the two reunite at 65 for a retirement party, Ernie will have grown his savings to nearly $1.3 million. Bill will have less than a third of that.”

Compound interest, as they say, is the eighth wonder of the world!


The “College Graduates Make a Million More” Fallacy

This highlights the fallacy behind the whole “college graduates make a million dollars more than non-graduates” claim. The problem is that you are comparing apples to oranges. The United States has gotten obsessed with credentialism, so a disproportionate share of the smartest and hardest working people are going to college.

But in the end, you’re not just comparing, say, an accountant who went to college to a plumber who didn’t. You are also comparing college graduates who enter the workforce to the most impoverished, underprivileged and sometimes incarcerated people in the country, making such a comparison all but meaningless.

And there’s a major difference between degrees, too. CBS News ran an article about the 20 worst-paying college degrees. Coming in dead last was Child and Family Studies, with a starting average salary of $29,500 and a mid-career average of $38,400. Art History was 20th, with a starting average salary of $39,400 and a mid-career average of $57,100.

On the other had, the average plumber made $53,860 a year, and the average electrician made $53,080 in 2015.

And, of course, this doesn’t account for the pile of student debt many college students incur. Currently, in the United States, there is a total of $1.4 trillion dollars in outstanding student debt!

And it’s going to get worse before it gets better. As Steve Odland notes for Forbes,

“College costs have been rising roughly at a rate of 7% per year for decades. Since 1985, the overall consumer price index has risen 115% while the college education inflation rate has risen nearly 500%.”



Related: Teaching Kids to Be Entrepreneurs is Key to Addressing the Wealth Gap: Here’s Why

What Does College Get You?

But colleges do provide a great education, right? Well, not always. Here’s how the New York Sun described the results of a test administered by the Intercollegiate Studies Institute:

“Students at many of the country’s most prestigious colleges and universities are graduating with less knowledge of American history, government, and economics than they had as incoming freshmen, with Harvard University seniors scoring a ‘D+’ average on a 60-question multiple-choice exam about civic literacy.

“According to a report released yesterday by the Intercollegiate Studies Institute, the average college senior at the 50 colleges and universities polled did not earn a passing grade.”

And that’s for those who graduate. Graduation rates overall, are not particularly impressive. According to US News:

“Studies have shown that nonselective colleges graduate, on average, 35 percent of their students, while the most competitive schools graduate 88 percent. Harvard’s 97 percent four-year graduation rate might not be that surprising … [but then]Texas Southern University’s rate was 12 percent.”

And despite our obsession with credentialism, as more and more people get credentials, that just leads to “credentials inflation.” Thus, it shouldn’t be shocking that in 2012, 53 percent of recent college graduates were either unemployed or underemployed. It also shouldn’t be surprising that defaults on student loans have started to increase. According to The Chronicle,

"One in every five government loans that entered repayment in 1995 has gone into default. The default rate is higher for loans made to students from two-year colleges, and higher still, reaching 40 percent, for those who attended for-profit institutions …

“The government’s official “cohort-default rate,” which measures the percentage of borrowers who default in the first two years of repayment and is used to penalize colleges with high rates, downplays the long-term cost of defaults, capturing only a sliver of the loans that eventually lapse …”


Alternatives to College

As shown above, professions such as plumbers and electricians can do quite well without a college degree, as well as many other professions. Yes, you’ll have to start lower on the ladder, but you have four more years (or five or six or seven more years) to move up — and a lot less debt to boot.

And then, of course, there’s entrepreneurship. Unfortunately, American entrepreneurship is in a steep decline. In 1975, almost 15 percent of total businesses were less than a year old. In 2010, it was less than half that. Much of this, I believe, has to do with our obsession with college and credentialism.


Despite the just-a-little-bit negative tone of this article, I again need to stress that college is definitely a good idea for some people. (This is especially true since we have a good number of student rentals in our portfolio.) But college is not just "what you do after high school." Today, in my opinion, too many people are going to college, and many of them are not served and are actually hurt by it.

There are many alternatives to college that people should consider. And entrepreneurship (including our favorite kind, real estate investment) is high on that list.

[We are republishing this article to help out our newer readers.]

Weigh in! Do you believe kids should be thinking twice before enrolling in college? Why or why not?

Leave a comment below.

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip ...
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    Petya Ivanoff from Long Island City, New York
    Replied about 3 years ago
    College education is a resource. If a person has other resources such as wealth, family connections, good HS education, access to basic business knowledge, then maybe college won’t add much value. What about a person who has no resources? Someone who doesn’t even know what questions to ask or what to google to gain useful information? For this person college education is the only chance to move up. At the very least it creates safety net. More resources help with investing in real estate. As a small business owner I know 3 small bustiness owners without college degrees who made simple mistakes I would’ve never made thanks to 2 courses I took in college. How else would I learn? I had no clue what info to look for. I think the real issue is not that college is not useful for some people but people need to understand what resources they have, how to use them and what they can gain from college.
    John Murray from Portland, Oregon
    Replied about 3 years ago
    I have a high school diploma and learned more about life and death in my 3 years in the Army. Used my GI Bill in an apprenticeship and did well. I’m a multi millionaire and paid $150K to educate my kids. They have zero student loans and I hope someday they appreciate it. Education is a scam, any organization that gives a teenager an unsecured loan is looking to capitalize on ignorance. There should be a program for students to secure financing with some type of financial education attached to prevent the tanking of a young ignorant life.
    Joseph M. from Saint Paul, Minnesota
    Replied about 3 years ago
    Useful degrees which give you skills can have an actual, positive ROI even accounting for opportunity cost. This is an investment (with intangible returns like more options, better working environments, etc.) Art history, gender studies, philosophy – any degree which is done to “broaden your mind” and give you a “well rounded education about the world” is a luxury good. It is something you buy to feel good or improve your life. It is, however, not an investment. It’s basic finance 101: Do not take debt for luxuries, only take debt for investments. The solution is if you want to go to college for Art History – don’t. Instead, read books, go to local art workshops, go to museums, research art on the internet all for free or under $100. Don’t take massive debt for a hobby. If you want to go to college for Computer Science – please do. You will have great job opportunities, great pay, great benefits, creative and fulfilling work.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied about 3 years ago
    Very well said!
    Replied almost 3 years ago
    As a 21 year old finance student at an institution that isn’t considered the “finest at its craft,” I have mixed feelings about this article. With a father that is a pipe fitter who built his life and a multi-million dollar business that eventually fell through on a trade and not a degree, I have talked to multiple industry workers who have reported a fear about the decrease in people joining “the trades.” And while I absolutely agree that some degrees are worth more than others, and that some will use their college experiences better than others, that doesn’t negate the real reason people go to college. It’s because now a days we can claim knowledge that we don’t have based on the internet and we can make large statements like it’s easier to learn now than ever. Yet we have an increase in “fake news” and “ignorant thoughts,” as well as “outrage culture.” Reading the news I have to admit, it doesn’t feel like society is using its tools to improve itself. Rather, it’s letting those who don’t educate themselves put their words on an even pedestal with those who have suffered those loans and degrees and earned them with late nights of studying and hardwork. Now, although the article mentions that a large amount of college students don’t know basic fundamentals of the government, economy, and so on, I’m glad they don’t! Because most students don’t have a specialty or degree in those fields! If we want to judge how much college graduates know let’s give them questions and tests based on their majors and minors and see how the results fare. Of course high school students are going to test better in general tests and subjects, we aren’t teaching specialized topics in high school! That’s not it’s purpise! High school is about setting basic foundations of knowledge so that students have something to work off of whether it’s in college or at an entry level job. Trust me, it’s really hard for a student whose had to take classes in forensic chemistry, astronomy and classic theatre as a electives and gen Eds to narrow down the specifics of the federalist poets and their failings, unless that student is in political science, or economics. Further more, without colleges or industries holding a high enough standard on the degrees that can be pursued how shocking is it really that those who would prefer degrees in American literature circa 1886-1950, or shakesperean literature and mythology aren’t focused or educated on politics and government? This is a lapse of judgement and oversimplification of facts. The following quote shows what I mean by oversimplified use of factual information when the author makes a stance about entreaprenuership, without any solid evidence or proof: “In 1975, almost 15 percent of total businesses were less than a year old. In 2010, it was less than half that. Much of this, I believe, has to do with our obsession with college and credentialism.” Let’s talk about government policies, taxes, and economic patterns if we’re going to cover this topic, let’s also avoid comment or usage of things like “I believe.” Me. Syrios, I get that you BELEIVE what you’re saying, because YOU wrote the article. What I want to know is WHY and what PROOF you have outside of random beliefs. But to say such a grandiose statement and only use some random statistic as your evidence sounds like a causality fallacy, just because trends point one way doesn’t mean other factors have a part of it. This is true in sociology, physics and practically every form of mathematical or scientific thought. So maybe evidence exists that the focus on credentials might have an influence on the number of businesses started, (which lets be honest, the argument is thin at best, why would your credentials matter if you’re STARTING a business? It might be harder to get funding but it should be, you’re unproven, young and idealistic, without some form of a reliable and fact checkable education, why would a smart investor trust you? Just because the college system has many flaws doesn’t mean it is ruining entrepreneurship, maybe it’s forcing those who do try to start a business to be better prepared, educated and dedicated.) what would be really important, then, would be to see the number of SUCCESFUL young businesses now compared to the time of the past that this article uses as proof of a point. If more young businesses were successful without education or experience, THEN an argument could POSSIBLY be made that college educations don’t increase the effectiveness of an entrepreneurship. But even then we would have to talk about and define what a “successful entrepreneurship” looks like and consists of and we would have to talk about the culture shift of entrepreneurship, where we have had incredible men start incredible businesses that had never been done before, but in a United States that has faced the Great Recession, the .com bubble, and Silicon Valley app startups, as well as a lack of faith in corporate banks, it’s safe to say that if you’re going to do something on your own and claim to be an “entrepreneur” you better have better ideas, platforms, and systems in place than those that have already been implemented, admittedly a hard task for anyone in an industry with experience, let alone someone without a college education that hasn’t been forced to do research on absolutely unnecessary and unrelated topics that have no impact on a students career or skills. But what it does is force that student to fight through dry literature about absolutely pointless topics to find information and FACTS that will back up their project/paper. This form of regimen and dedication are required elements of not only a successful college education but also a successful career. Warren Buffet, Mark Cuban, and Steve jobs were all required to read pointless shit that meant nothing to them but did it anyway to build the skill of critical thinking skills AND more importantly, CRITICAL REASEARCH skills. Now I don’t believe college is for everyone, that’s why there’s the military, trades and other jobs for those without the education. BUT, I throughly believe that to be respected and successful in MOST fields of study you have to be as good or better than the best, and it’s pretty hard to get there if all you’re doing is “independent study” of YouTube videos and fake news articles. Textbooks are boring and dry but at least they have more educational standing/backing/proofreading that makes them more trustworthy than most .news or .net news sites will have on their entire sites. Just because student loans suck doesn’t mean they aren’t manageable it means that we aren’t requiring enough foresight and forward thinking from out high school graduates who think they can do “anything and everything.” If you’re going to have student loans, you might want to pick a degree that can pay those, otherwise you might as well be an “entrepreneur” using money as a justification for not working hard or challenges themselves. College isn’t right for everyone, but that doesn’t mean it’s not or useful, rather a system ripe for improvement.
    Jennifer H. Investor from San Antonio, TX
    Replied about 2 years ago
    I attended college and earned a Bachelor’s. I was fortunate to be awarded grants and did not pay for my schooling. Because I didn’t have to pay for school we used our incomes to purchase our first two rental properties. College is overrated. They teach you how to work for someone else, be a worker and get a job. No free thinking or entrepreneurial courses. They don’t teach you to how to succeed in the real world outside of cubicles. Again, I’m greatful for the assistance to pay for my tuition, but now that I have my degree I realize the very low value you get for your time. I could have been searching for properties, learning about funding options, finding partners, etc. Granted, my degree opened the door to a high paying job, so I don’t regret my degree I just don’t advocate others to spend their hard earned time and money to get one. Only do it if its free.
    Petya Ivanoff from Long Island City, New York
    Replied about 2 years ago
    Many colleges offer entrepreneurial courses. You can google them. Courses analyze cases of successful and unsuccessful businesses. Taking those courses helps avoid simple mistakes that beginners make. Even if it doesn’t help with additional income, it definitely helps with confidence in making decisions. Investing in real estate is a part of courses where students learn about all kinds of investments. Can a 20-year old learn without college? Yes but he/she would need a knowledgeable and trusted mentor. Not many people have such opportunity. Price may be the problem but there is financial aid, city and state tuition, etc. These days one can have a f/t job and a business. Why not use all resources available?