State College, PA - Centre County - Central Pennsylvania - Home of Penn State University

Graduates and the Job Market

by on July 03, 2011 6:07 AM

State College is a quiet town right now with the recent graduations of high school and Penn State seniors. These graduates and their counterparts over the past two years face a difficult job market. Unemployment for recent college graduates climbed from 5.8 percent in 2008 to 8.7 percent in 2009. In 2010, the annual unemployment rate for 20-year-olds with college degrees was 9.1 percent.

There are several questions that are becoming louder and louder in news resources and from the recent downturn in the economy. Is a college education worth it; that is, does it pay off for the graduate? Will the increasing cost of higher education start to deplete our middle class or, rather, will a college education become a luxury for only those who can afford it? Our country is already concerned about our disappearing middle class and this could aggravate the problem.

To enter the debate, let's look at the numbers.

A bachelor's degree at Penn State costs $105,952 for Pennsylvania residents. That is from the Penn State tuition calculator on the university's website and includes the costs of room (on campus), meals and books. This is merely a calculation using the current cost for fall semester and does not include increases for inflation or tuition increases over those four years.

I must admit; it took my breath away. To put this into perspective, the real median household income in 2009 was $49,777, according to the U.S. Census Bureau. The median starting salary for students graduating from four-year colleges was $27,000 in 2009 and 2010.

Student loan debt has surpassed total credit card debt in the U.S., and it is projected to reach $1 trillion in 2011. College graduates in 2009 carried an average of $24,000 in student loan debt. How can a recent graduate pay for school loans in addition to housing and other normal costs of living?

There are other numbers, however, that indicate that a college education can have many benefits that outweigh the costs.

How much more can you earn with a college education? The latest statistics show that an associate's degree means 30 percent higher income and a bachelor's degree equals about 75 percent higher income when comparing both with someone who has a high school diploma. That is a considerable amount in a lifetime. The U.S. Census also showed that households with lower levels of education were more likely to remain in or move into a lower income than households whose residents had higher levels of education.

Barron's article, "The Future in the Mirror" by Thomas G. Donlan, notes that the overall unemployment rate of all people with graduate degrees was just over 3 percent in 2009. The unemployment rate for those with less than a four year degree grew to 8.3 percent. High school graduates' unemployment rate was 11.1 percent and it was a whopping 17.6 percent for those with less than a high school education. In short, during a serious downturn such as the recent "Great Recession," having a degree helps one to not only gain employment, but to stay employed. Each recession since the 1970s has shown a greater concentration of job loss among those with the least education. As a side note, this problem has been compounded by the move from a manufacturing-based economy to a service-based economy in the United States.

The above data does show that getting a degree adds a real economic value. Graduates earn more, are considered attractive hires, are more likely to remain at higher income levels and were less likely to become unemployed in a downturn.

In addition, there are the "soft" benefits of college for the individual as well as society at large. An older study, "Reaping the Benefits: Defining the Public and Private Value of Going to College," outlines the social benefits of higher education. Private benefits include longer life expectancy and better general health, improved quality of life for the graduates' children, better consumer decision making and improved personal status.

The study also highlighted the public benefits to the population at large, which include reduced crime rates, higher voter participation, more social cohesion and appreciation of diversity, greater ability to adapt to technology and more charitable giving and volunteerism. This is an incredible list and one that shows a greater value to college than mere numbers can provide.

If a college education offers so many benefits, how can parents or teens help prepare for the enormous financial burden that college entails? There are many investment vehicles that allow individuals to pay for a college education. Start an investment for a baby as soon as they are born and the money can compound over the next 18 years.

For a teen who has started their first job, have them put away at least $50 a month or quarter to invest toward their education. This will help teach the value of money and get them thinking about the huge cost of their education. Check with an investment adviser to discuss the options available to get started. As with any investment, the earlier you start the better.

Judy Loy, ChFCâ, is a Registered Investment Advisor and CEO at Nestlerode & Loy Investment Advisors, State College, Pa. A graduate of Penn State University, Loy has been with the firm since 1992, assisting clients with retirement planning, brokerage services and investment advice. She can be reached at [email protected]
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