If you are a parent of a child anticipating college, the financial logistics of obtaining a college education can be summarized in two questions: How will we pay for it? And will it be worth the cost?

Recent data hints at some nuanced answers, and some surprises.
Too Many College Graduates, or Too Many Contestable Careers?
According to Volume #1, 2014 of Current Issues of Economics and Finance, published by the New York Federal Reserve Board, the number of recent college graduates (between the ages of 22 and 27) who are underemployed (i.e., working in jobs that typically do not require a bachelor’s degree) has risen from 34% in 2001 to 44% in 2012. Combined with the 6% of recent college graduates who are unemployed, half of all recent degree holders have not seen their diploma result in a better job. What’s wrong? Are there too many graduates and not enough jobs?

The Fed report speculates at an interesting alternative explanation:
(U)nemployment and underemployment rates differ markedly across majors. In particular, those who choose majors that provide technical training, such as engineering or math and computers, or majors that are geared toward growing parts of the economy, such as education and health, have tended to do relatively well. At the other end of the spectrum, those with majors that provide less technical and more general training, such as leisure and hospitality, communications, the liberal arts, and even the social sciences and business, have not tended to fare particularly well in recent years.

The Fed report concluded, “It appears that a college major plays a role in determining whether a college graduate will find a good job.” Simply obtaining a degree is not enough to ensure stable employment or a lifetime of higher earnings. The degree must confer entry into a high-value industry or profession.

Economist Samuel Rines expands on why some college degrees have lesser economic value. In a commentary published October 22, 2014, in the National Interest, he talks about “contestable” jobs, ones that can either be outsourced overseas or replaced by technology (robotics or other automated processes). “(W)hen a US job is contestable internationally, then US workers are competing with cheap labor around the world.” In contestable job sectors, Rines believes “wages could be pressured or even decrease toward internationally competitive levels,” drastically diminishing the long-term earning potential for some US college graduates.

Education Debt Exacerbates Underemployment

The Fed report distinguished between “good” non-college jobs and “low-wage” noncollege jobs. A good non-college job paid an average annual wage of around $45,000, while the low-wage job paid below $25,000. Since 2000, the Fed also found a clear trend: “The share of underemployed college graduates in good non-college jobs has fallen sharply, while the share working in low-wage jobs has risen.”

The challenge of making financial progress for underemployed college graduates in low-wage jobs is made harder by the debt they accrued to get their degree. For many, this combination puts their lives on hold; they can’t earn enough to service their education debt and save. Some numbers Rines cites for recent graduates and education debt:

45% put off buying a house
55% delayed saving for retirement
14% put off marriage
28% put off having children

If You Find the Right Career, You May Work a Long Time (and Like It)

In an April 17, 2014, article for ThinkAdviser, James Green relates that studies indicate Baby Boomers who remain in the workforce appear to do so because their higher levels of education result in “more meaningful jobs that can be performed into older ages.” While a much larger percentage of non-college-educated Boomers have already left the work force, higher levels of education are strongly correlative to increased job satisfaction, greater earnings and longer careers. Obviously, the ability and desire to work longer and more profitably greatly improves all the metrics for retirement.

Getting College Right Is a Big Deal

In an August 15, 2014, commentary for Forbes, Chris Bowyer observed that “it’s been the unofficial policy of many leaders, political and otherwise, to champion higher education as a universal good,” regardless of the field of study and how much one borrowed. But current data suggests one’s choice of major and plan for education financing has significant long-term ramifications. The economic gap between a good college decision (one that results in enjoyable, profitable, life-long work) and simply getting a degree (leading to underemployment and burdensome debt) is becoming a chasm.

Besides seeking competent career guidance for their children (probably more than “What are your interests?”), parents should also consider how to best arrange their financial assets to minimize education debt and, if possible, maximize eligibility for financial assistance. Delaying college, working and attending part-time, starting at a community college – every possibility should be on the table. Because whatever career path they pursue, your child’s ship will sail lighter if it isn’t dragging an anchor of debt.

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