Managing College Costs and Debt (Full Podcast)

Welcome to the PwC-KWHS Podcast Series for High School Educators on Business & Financial Responsibility.

I’m Diana Drake, managing editor of Knowledge@Wharton High School, and today we are talking about the economic value of higher education and how to help students manage college costs and debt. During our discussion, we will traverse the rugged landscape that surrounds higher education. Students are faced with ever-rising tuition costs, staggering student-loan debt, a difficult job market and the inevitable question: Is college worth the investment? I’m here today with two experts who will help us sort through these important issues, and offer high school educators some practical insights and advice to help their students make more informed decisions about their financial lives after high school and on college campuses.

Michael Deniszczuk is a retired partner from PricewaterhouseCoopers, where he served for 38 years. Mike is also a member of the board of directors of Junior Achievement of Greater St. Louis and served as a Champion of PwC’s “Earn Your Future” commitment to improve the financial competency of youth and educators.

Management professor Peter Cappelli is the director of the Center for Human Resources at the Wharton School, University of Pennsylvania. Peter’s latest book, Will College Pay Off? addresses many of the issues we will be tackling today. Thank you both for joining our podcast on the economic value of higher education. I would like to point out that during our discussion we will also be addressing questions sent in from high school educators.

Below is an edited transcript of the conversation.

Knowledge@Wharton High School: Let’s start with the big picture. Looking at money and college, we’ve all seen the headlines. The cost of college tuition is staggering. Some of the latest annual numbers suggest that tuition, room and board are estimated at around $13,500 for public universities, $37,800 at private non-profit universities and the $23,300 at private for-profit institutions, and those numbers are increasing year after year. Help us to better understand what is behind these rising costs. Is it driven by college administrative needs, reduced government funding to colleges, more students attending four-year colleges? What is behind it?

Michael Deniszczuk: Let’s start with some statistics that further support your question. For at least a century, tuition at selective private colleges and universities has risen annually by two to three percentage points more than the rate of inflation. In its annual analysis of college prices, The College Board found that for the most part, higher education costs continued to outpace the average growth in workers’ incomes. Why is this? First, the cost of public universities is rising as state funds are cut or allocated elsewhere.

Public universities have sustained deep funding cuts as a consequence of the recession our country faced recently. While in the past year many public universities have been able to moderate tuition inflation because the economic rebound has increased state tax coffers, on average, states are still providing about 20% less funding for students at public colleges than they were prior to 2007.

Another factor driving the increase in tuition, which has affected private as well as public universities, is rising costs based on the objective of most academic institutions to be the best they can be in every aspect of their offerings. Let’s face it: Colleges compete with each other for students by offering distinctive experiences such as star professors, new buildings, latest technology, research facilities, beautiful grounds, etc.

Let’s just take technology as an example. Colleges must offer an education that gives students the tools they need to succeed in a modern economy. Technology can be a key competitive advantage. Top institutions have chosen to maintain quality largely by spending more, not necessarily by increasing efficiency, reducing costs or reallocating funds.

Finally, it’s a matter of simple economics — the laws of supply and demand. Universities have found that they could raise tuition at rates that outpace inflation to meet a rising demand. According to the National Center of Education Statistics, in the past decade the number of college-age Americans grew by 3.7 million, and the proportion of 18- to 24-year-olds enrolled in college rose from 35% to 41%. As demand increases and supply remains steady, prices will go up.

Peter Cappelli: One other thing we might notice here, in fairness to the colleges, is that the sticker prices don’t tell us what most people pay because of financial aid.

Financial aid has been going up since the recession faster than the cost of college. As such, one of the reasons that college tuition prices go up is because there’s a kind of redistribution going on, particularly at the private schools, and that is that they are spending a lot of their money on financial aid. The average family that gets financial aid in the United States now is making an annual income of $100,000. It isn’t just going to people we thought of as being poor anymore. In terms of figuring out what the real costs are for students, it’s very difficult because the sticker price doesn’t tell you very much about what you actually are going to pay. You don’t really know that until you start being admitted to colleges and seeing what kind of financial aid they’ll give you.

KWHS: The nation’s overall student loan balance is way up, having risen throughout the recent financial crisis. What will be its resulting economic impact? Will millennials delay buying homes, for instance, under the burden of their debt? What’s the ripple effect of the financial burden on young Americans?

Deniszczuk: College tuition and loans top the list of money matters that are worrying millennials ages 18 to 29, and 21% of them claim it’s their family’s main financial problem. Now, one third of those with student loans are shelling out over $300 per month, and 5% are paying more than a $1,000 per month. According to research from Junior Achievement and my firm, PwC, nearly one in four millennials believe their student loan debt will ultimately be forgiven. Whether that proves ultimately true or not, student debt is still a major issue impacting the decisions of many millennials.

Everyone knows that a debt load can impact the way someone spends going forward. There was a collection of studies that show the burden of student debt may cause people to make different decisions than they would otherwise, affecting not just individual lives but also the entire economy.

According to research by the Federal Reserve Bank of New York, fewer millennials have bought homes since the recession. But the decline has been steeper for people with a history of student loan debt and it has continued even as the housing market has recovered. According to Harvard University’s Joint Center for Housing Studies, home ownership among millennials in the 25 to 34 age group has decreased by eight percentage points between 2004 and 2013.

More specifically, according to a report on household debt issued by the New York Fed, the proportion of adults in the 27-to-30 age bracket who have a mortgage has fallen most sharply among those who have student loans as well. That’s just the mortgage picture. We see a similar story with auto loans.

The second point is people with student loans are less likely to start businesses of their own, according to a study on the impact of student loan debt on small business formation. Sixty percent of jobs are created by small business, so if you shut down the ability to create new businesses, you’re going to adversely affect the economy.

This next statistic is probably the most disturbing to me. According to a Merrill Edge report focused on millennials with between $50,000 and $250,000 in investable assets, slightly over half of the survey respondents had no retirement savings in 2014. Only 35% of those people said that they planned to save in 2015. The survey noted that 65% of student debtors intend to pay off their student loans first and then save more for retirement.

The student loan issue does not only have short-term implications but it could also have an impact on the ability of people to retire comfortably years down the road.

Cappelli: To put this in perspective, at the moment student loan debt is second only to mortgage debt in the United States. It now exceeds credit card debt – so it’s a huge chunk of dough that’s sitting out there. It’s burdensome, partly because the nature of the loans makes it very difficult for them to ever go away unless you pay them off. The students who expect these loans will be forgiven are in for a nasty wake-up call because, at least at the moment, even bankruptcy doesn’t get you out from under these loans.

Deniszczuk: What you’re seeing then in early years is that student loans are replacing mortgage loans as the key loans that families have in their early 20s after they graduate from college.

KWHS: President Obama has vowed to make college affordable for all Americans by investing $60 billion over the next 10 years to provide free community college tuition to as many as 9 million students a year across the country. Does this program and other similar efforts suggest that young people reaching college age can expect their next two or four years to be more affordable? When it comes to managing college costs, is relief in sight?

Cappelli: Going back to our earlier points about why tuition has gone up so much, these are largely political choices about how much society wants to spend on education.

President Obama’s proposal to provide more money for tuition at community colleges is something that sounds very nice. The problem with it is that community colleges, like most state institutions but especially community colleges, are really underfunded and they pretty much are losing a lot of money with every student they take in. The big problem for students at community colleges is availability of courses. Even if I get admitted and I can afford to pay, can I get the courses because they’re so underfunded? They can’t offer enough programs; they can’t offer enough courses.

The problem of offering a lot more tuition assistance is it basically ramps up the demand at these community colleges. But they don’t have the resources to meet it. It’s kind of shifting the burden, creating a lot more demand onto the local communities that are the ones paying for community colleges. Whether or not they’ll be able to meet that is an open question.

If I were someone thinking about going to college in the next couple years, I wouldn’t think it’s going to get much easier. The proposal the president has put forward hasn’t been agreed to by Congress and it’s not clear it’s going to be. I wouldn’t hold my breath as to whether things are going to get a lot easier.

Deniszczuk: Community colleges do serve as a worthwhile starting point for many students. But when you look at higher-paying professions, particularly in business, it certainly is better if you start at a community college and transfer to a university at some point, usually after one or two years.

KWHS: What do you feel government should do or not do about costs and availability for higher education?

Cappelli: The federal government is not much of a player in higher education except for student loans. About 12% of the budget for higher education comes from the feds. Most of it comes from state governments and local governments. Eighty percent of students in the U.S. go to state universities or state systems, so it is the states that carry the burden for this. And states, even before the recession, were squeezed by increasing demand, particularly in Florida and California – growing states that weren’t funding universities and the colleges at the level of the demand for them.

They’re admitting kids and they are not providing the support for them –tuition goes up as a result. Sometimes, the states are limiting the amount of tuition increases that the universities can put in, and then they basically end up just not offering many courses, or changing the kind of education you get — much bigger classes, fewer seminars and fewer choices.

These are political choices. In the United States, we pay about seven times more as private citizens for college education than our colleagues in other industrial countries do. The U.S. pays more for college by far than any other country, public and private. We’ve made political choices that make this pretty expensive for families. Now, part of the reason we did was because of the belief that it was going to pay off for you to have a college degree and so it was okay for you to pay for it yourself and take out loans to pay for it.

It’s not quite clear that that’s still the case, and so politically, it is a bit of a problem. We’re encouraging people to go to college. We’re telling parents it’s important to send your kids to college. It’s incredibly more expensive than it was a generation or so ago to do it and there’s a lot of risk involved if you go to the wrong school or you don’t graduate, which is a big issue. Like a lot of things in the U.S., these are political questions upon which people have very different points of view. And the lack of consensus explains why nothing much is happening to help.

KWHS: Our first question from a high school educator is about opportunity costs. Mark Bichler, a business teacher at Port Washington High School in Wisconsin, would like to know how he might address the idea of opportunity costs with students when they are considering where to go to school in relation to the financial commitment.

Cappelli: Opportunity costs mean, basically, what else would you be doing if you weren’t going to college? The opportunities are kind of limited these days. The idea that you could, for example, go to vocational school is something that more or less has been cut out of the U.S. system. Vocational schools at the high school level have kind of disappeared. The kind of jobs that you could have had working in factories a generation or so ago and get some real world experience and maybe make some money before you go to college, for example, those are gone as well.

But there are opportunities for kids, particularly for kids whose families can support them a little bit if they take jobs that are not-for-profit experiences, unpaid or lesser-paid jobs. For example, doing things in the community — the kind of program that lets them get involved in public service in different kinds of ways to serve their communities.

Those things are pretty useful for kids. They help them grow up. One of the things we probably need to remember is that there’s nothing magical about going to college at age 18. There’s nothing that makes it better for you than going to school at 19 or 20. In fact, at least the anecdotal evidence and some hard evidence suggest that students who are a little more mature probably get more out of college. I don’t think it hurts you to delay going to college at all. You don’t want to just sit on the couch for a couple years though. That’s not going to help you.

But if there are opportunities to do the kinds of things that you might not be doing after college, it’s probably a very useful thing to think that more kids ought to be pursuing some of those opportunities. Even if they don’t set them up well for life afterwards, you learn all kinds of interesting things from those experiences, as long as you can find them.

Deniszczuk: If you decided to defer college for a year or two, you could also be working in some job that would help you potentially pay for college going forward, as well.

Cappelli: That’s one of the aspects of opportunity costs that’s gotten worse is that well-paid jobs for kids right out of high school have more or less disappeared. If you’re living at home you might be able to save a little bit of money, but for middle-class kids, I’d say more likely they’re going to be looking for opportunities to have some experiences that might broaden them and maybe would help them in college, get into a college or maybe some life experiences that help them become a better person afterwards. And all that’s pretty reasonable to do.

Deniszczuk: In comparing colleges, you don’t have to go to the most expensive college to get a good education and get a good job. State universities still offer a very good deal, and particularly when you’re paying tuition as an in-state resident.

Just as an example, I went to a state university in Missouri and had several job offers and a very successful career at PwC. Students and parents should research schools, focusing not only on costs but on rates of placement in jobs, average starting salaries and reputation among employers, etc., when choosing a school. You don’t have to pay for the most expensive school to get good opportunities coming out of college.

Cappelli: It is very tricky for parents though because it often can be the case that a private school could be cheaper for you than a state university because state universities don’t offer as much financial aid as private universities do. If you get into an Ivy League school and your family doesn’t have a ton of money, it might very well be cheaper. At Penn, for example, we’ve more or less guaranteed that if your family earns $100,000 or less you get free tuition. You won’t get that if you go to Penn State here because they don’t have deals like that.

One of the reasons this gets too complicated is you’ve actually got to apply to these different places in order to figure this out – and it’s worth doing. It’s worth applying to different colleges; it’s worth filing out all the financial aid forms. Some of it seems like a pain to do but I guess I would encourage anybody who’s worried about this that you could get an accountant to help you fill out those forms if you find them daunting to do. It’s worth paying him to do it because there are a lot of people who are eligible for financial aid who never apply — about 20% of people are eligible and never apply. That’s a lot of money that would otherwise be available.

KWHS: Let’s focus now on paying for college. Yes, the cost of college is on the rise. Students have a dizzying array of options to help them pay, from applying for financial aid to pursuing grants and scholarships and more. In general, how should students tackle this process and prospect of paying for college?

Deniszczuk: I have three pieces of advice — plan, plan and plan. When you stop and think about it, college is one of the biggest decisions students will make in their early lives. You’ve got financial aid, school loans, borrowing from family — they’re all viable and responsible options. But if the details aren’t thoroughly understood then the step to advanced education can be economically detrimental. The key is advanced preparation and planning — taking a long term, thoughtful approach to the education you’ll need to achieve your professional goal can help eliminate surprises and guide students, parents and guardians to the right course of action.

I don’t think you have to pick the most expensive option to get the best education. As Peter said, it may be that the sticker price might not be the best way to look at a college either. You’ve got to get in and do some research, find out what kind of financial aid is available at certain private universities, for profit and not-for-profit, and compare that against the career that you’re looking for and in the state that you’re in.

Based on the students’ view of what type of career they want to pursue, try to determine what the best colleges or other higher education options are to help them achieve this. Research the schools and where employers in the profession hire from. There’s a wealth of information out there if you take the time to do the research.

Let’s go back to high school now. Grades matter and they play a factor in financial aid options. While colleges use admission tests like SAT or ACT to compare students, they’re also very interested in the student’s grade and the grade point average and how much they’ve challenged themselves in school.

The important thing to remember here is that this is something the student has control over because if they work hard, challenge themselves in high school with course work beyond the basics — for example, honors or AP course work — and make good grades early on, say starting in the ninth grade, and sustain those good grades their senior year, it can make a difference. Strong grades and GPA can translate into more scholarship or financial aid opportunities, both through the school and from private scholarship programs.

Now, I mention ACT and SAT. They are important and those are tests that many colleges still require as part of the student’s application process. The higher the score, the more competitive the student is in the college admissions process. This can translate into merit scholarship opportunities to the school in which they’re applying. Ideally, students should begin preparing for those kinds of tests perhaps in their junior year, maybe taking it at least once as a junior, with opportunities to retake and improve their score in their senior year.

There are a number of tools out there that students and families can use to calculate college costs. In fact, many schools now include college calculators on their websites within their financial aid web page. … One of the tools that students and parents should consider using is the JA Build Your Future app. This was an app created jointly by PwC and Junior Achievement. It’s an app you can find in both Apple and Android stores.

It’s a pretty simple app. It helps teens explore the potential future income from their desired career and evaluate the costs of a post-secondary education to help them make informed decisions. It allows teens to explore more than a hundred careers and see what levels of education are required for those careers, from high school in some cases to a doctorate in other cases. They learn about potential income from those careers, calculate the costs of education, include factoring in the costs of attending an in-state, out-of-state, public or private university. Then they can adjust the level of money they and their parents or guardians may contribute combined with student loans they may need to secure.

At the end of all that exercise, once they plug all that information in — it’s not very hard to do, it’s easier than doing some of the financial aid forms that people do — the teens are given a return on investment score between one and five. A score of one suggests it will difficult to pay off your debt based upon future income. An ROI of five would indicate that there should be less financial hardship paying off debt with that estimated future income.

Cappelli: The subtitle of my book is “A Guide to the Most Important Financial Decision You’ll Ever Make.” … Let me just add a couple of things in terms of thinking about this investment.

Back to the issue of grades, for example. There’s a distinction between financial aid as we usually think about it, which is need-based. … It’s based just on your family income. But your grades and other attributes affect what’s known as merit aid. Merit aid is increasingly important. When I was in college, merit aid basically didn’t exist.

Merit aid is basically colleges trying to buy a better student body. What that means is they are trying to get students with higher scores than they had before because it makes the college look better.… What they’re offering you is the opportunity to trade down — that is, go to a school that might not be as elite or selective as the one you would have gone to. But if you take that, it’s a lot cheaper.

Some of these merit-based scholarships are quite substantial. It’s not unusual to get a 30% to 50% reduction in your tuition in order to go to one of those schools. This is a tough choice, but it’s one you ought to think about carefully if you’re a family … if it lets you avoid taking out student loans.

The typical student loan interest rate right now is about 7%. The federal government student loans, the very best ones, are pegged at the moment at about 4.8%. But 7% is a pretty high interest rate. For most of these loans, the interest starts compounding from the day you take them out. It continues to compound even if you don’t have a job and you cannot get out from under these.

Some federal loans, you’ll be glad to hear, you can get out from under if you die. But that’s about it. If you declare bankruptcy, you’re still stuck with them — and these are big, big deals. Most parents would have a very hard time if their kids took out a car loan of $50,000. But if a student took out a college loan of $50,000, we wouldn’t blink about that. It happens all the time. But it’s actually much more serious. So the merit … scholarship decision is a tricky one to think through because we also know that if kids go to colleges they don’t want to go to, they don’t do as well there. Any parent who’s tried to talk their kid into going to someplace the kid doesn’t want to go to, will find that’s a really unpleasant conversation to have.

On the other hand, the money issue is a big, big deal. It’s something we better think about carefully. … I would really discourage somebody at age 17 from trying to pick their career. And the reason is you don’t know much of anything at 17. It’s quite likely that once you get into college and you see other opportunities, you’ll change your views on your major. You’ll change your views on what your career interests might be. Those of us who are older know that many people later in life still aren’t sure what they want their career to be.

The reason that matters is in choosing your college you want to be able to go someplace where you can change your mind. For example, you think you want to be an accountant, let’s say, and you go to an accounting school and you decide once you get there that you don’t like accounting — if you have to change colleges to change your major that’s a difficult thing to do. Changing majors is something that most kids do. Many kids do it more than once. You really want to go to college where it’s easy to change your major.

The most important thing for parents who are thinking about the investment in college is, will my kid graduate and do it on time? Only 40% of kids graduate in four years in the U.S.; only 60% graduate in six years. One of the big hurdles in graduating on time is getting your majors completed. Particularly when kids change majors, they often find that they have to take a different sequence of courses and they have to take them in a particular order to get this major. Often, they can’t get the courses they want in the order they need to take them and they end up spending a fifth year at college because they have to do it in order to complete the new major.

I would think a lot about going to a school where, if I change my mind, it doesn’t put me into a hole. I would think about that as being one of the primary things that guarantees you’re not going to get burned too much on the cost side.

KWHS: Another question from an educator: Lou DiCesare from Irondequoit High School in New York wants to know what advice you might offer to the average college applicant. This would be someone who has average academics, is not a Division One scholarship athlete and his parents make too much money to receive grants and too little money to save or pay a sizeable amount of the cost. What other options are out there — things like dual enrollment, community college or even working part-time during college?

Cappelli: Good news for parents and for kids: Once you get past the super-elite schools, getting into college is actually pretty easy. These days, as the echo of the baby boom begins to decline a little bit, the entering cohort of 18-year-olds is actually getting smaller. About half the schools in the U.S. effectively have open admissions. That is, they’ll take pretty much anybody. There’s a lot of places you can go, and it’s also possible to transfer from one school to another. It’s possible to start at community colleges or at a state university and transfer to the flagship university, and lots of other opportunities.

Going to school part-time is also an option, and a huge number of people do that in the U.S. The trick with it though is that if you are not earning very much money, it’s going to be pretty difficult to pay your way through college going to school part-time. If the average college student takes … six years or more to graduate, if you’re going to school part-time, it’s quite likely to take you a very long period of time to get your degree. And you have to pay it off working at pretty low-wage jobs.

I did a quick calculation a little while ago of how long it would take you if you were working at a minimum-wage job to pay off college. In the 1950s, even at the Wharton School, you could pay off a college education in about a year working at a minimum-wage job if you were living at home. But because minimum wage has eroded in purchasing power over time and college tuition has gone up so much, now it would take you many years to pay off a college education working at a minimum-wage job.

I would think long and hard about trying to go to school part-time. It’s a very different experience than being a full-time student some place. It might be better to think about going to a community college full-time where you can give it some focus than it is to try to be a part-time student at a four-year school where you’re effectively not going to have a cohort. You’re not going to have an on-campus experience. It’s something quite different.

KWHS: Aaron Greberman, a business teacher from William Bodine High School in Philadelphia, wants to better understand the specifics of financial aid. He asks, how do colleges determine who receives aid? How do they determine the amount of aid offered? And how can parents maximize financial aid awards?

Cappelli: There’s a big chunk of financial aid around and … most of it comes from the federal government. That aid is allocated based on some very clear formulas that have to do with parents’ income and wealth and parents’ obligations like the number of other children they have to support. There’s not much of anything you can do with that and the schools themselves can’t play around much or at all with that.

The schools themselves have other kinds of financial aid, and those financial aid issues they can play around with more. For example, there is some evidence that if you tell a school that you don’t need much financial aid they might be more inclined to admit you. They don’t often admit that but there is some survey evidence from college admissions officers suggesting that’s the case.

Then there’s the merit aid we talked about earlier. If you’re a parent, there’s not an awful lot you can do to game the system. For one thing, you better think very hard about making stuff up because it’s a felony if you get caught faking a college financial-aid application for federal government purposes. The issue of admissions and financial aid does matter a little bit. On the merit-aid side, you probably can bargain with schools. You can say, ‘My child would really want to come here but we got a better offer from someplace else. Would you be willing to match the offer?’ … Cornell University says that they will match any other college’s need-based financial aid.

If you get a better deal on financial aid — not merit but just the financial aid from someplace else — you can go to Cornell and say, ‘we got a better offer from Brandeis or Penn and they’ll say, we’ll match it.’ That’s something you probably can bargain with if you get a better offer from another school. On merit aid, that’s something you can shop around with as well.

But otherwise, the straight up, need-based financial aid which is mainly federal-based — you can’t do much of anything about that. Don’t try to manipulate your income in order to try to get more out of that. That’s simply based on your tax return kind of information, and that stuff you can’t fudge.

Deniszczuk: Just from personal experience, I did not qualify for financial aid, but my experience is if you don’t ask for the merit aid, you’re not going to get it. My simple rule is if you don’t ask for it, you’re not going get it. So you may as well ask for it.

KWHS: Are trade schools a good alternative for students who aren’t interested in college? And how does the cost compare?

Deniszczuk: It depends upon the type of career or profession you’re looking at. A trade school is an educational institution that teaches skills in a very specific type of job. Trade schools typically take a lot less time to complete and they have smaller class sizes. And the majority of the training is hands-on, which may be an ideal environment for many types of learners out there. Not everyone is going to go on to university.

There are lots of options that lead to potentially well-paying jobs, like electricians and plumbers and welders and metal workers and masonry workers and locksmiths, and so forth. Some of the professions can pay pretty decent wages. According to PayScale, electricians earn an average of over $20 an hour — somewhere between $30,000 and $80,000 a year.

Plumbers are around the same amount. Technical and trade school jobs, if you look at some of the reports out there, pay an annual median salary of about $35,000. But that figure varies very heavily based upon the particular industry and the experience level of the worker. By comparison, the Bureau of Labor Statistics predicted earnings for a bachelor’s degree holder to be roughly $47,000, or about $12,000 higher.

Again, it depends on what type of career you’re looking at, what type of job you’re looking for, how well you’ve done in school and so forth. Going to a trade school might make sense and in other cases it might not. When you look in the longer term, looking at lifetime earnings, a bachelor’s degree still pays off and it opens many doors for the future. It will result in higher starting earnings and better opportunities for increases in earnings, and gives the option to continue studies and earn substantially more with a master’s degree or doctorate. Those would not be available for a person who is going to trade school.

Cappelli: Let me just add a couple of things to why this is such a difficult decision to make. You really have to think about this carefully because it’s quite hard to know how well different colleges prepare you for the job market. Colleges are not required to report placement rates, and they typically don’t. When they report placement rates, the information they’re providing is often not particularly trustworthy.

Now, some of that is just hard to do — period. It’s not their fault because in order to do it you have to follow your alumni, the people who’ve graduated, and find out what they’re doing. Sometimes it’s hard to find them. When you find them, they don’t often answer your requests for information. But what’s reported is often pretty dicey.

There was an interesting paper done by a couple of law professors. They concluded that what law schools were reporting about placement rates was so misleading that it actually constituted fraud. They were reporting that any law school graduate that had any kind of job was employed, even if it wasn’t in law. They were counting people who were working part-time as regular placements — all kinds of things that are highly misleading. So, it’s pretty tricky to figure out what schools will prepare you well for the job market.

The best thing you can do for four-year colleges is go to their placement office and look to see who’s recruiting there, what kind of jobs are available and what are the pay rates of the jobs that are being offered to graduates that year. PayScale has some interesting information about annual salaries of graduates from different colleges. They did an interesting study in combination with Businessweek to look at the rate of return on your investment, which is different than saying, will you make more money as a college grad than a high school grad.

It’s not surprising that college grads make more money than high school grads. For one thing, they’re older. For another, people who go to college are already different than people who only go to high school. They’ve got more parent support. They typically have more money going into it. And what the PayScale guys found is in a quarter of the colleges that they looked at, the rate of return on the college investment was actually negative. That means the best thing you could do at those colleges to improve your return on investment was quit. That’s pretty stunning.

The idea that college will always pay off is not true – it depends on where you go. The idea that you will get a better job out of college, at least in terms of money, is probably not true either. It’s very difficult to predict.

It depends on supply and demand. Back in the 1960s and through the early 70s, high school graduates in the U.S. did not make less money than college graduates, though that was a period when we had strong unions and high manufacturing wages. It’s pretty stunning to think about it. We always just assumed that college graduates make more. But it wasn’t always true.

Right now, that gap between college grads and high school graduates is as high as it’s ever been. If you’re betting, you probably wouldn’t bet that it will stay at this level forever. There’s a lot of uncertainty here, which is why it’s important to try to get as much information as you can. But some of that information is hard to get.

KWHS: Let’s move on to helping students manage post-college debt. I’d like to start with the example of Zina Kumok, who’s a regular contributor to the Knowledge@Wharton High School business journal. Zina graduated from college a few years ago with thousands of dollars in debt. She vowed to become debt-free in three years and was successful in doing so. She has said many times that she had no idea what she was getting into when she signed on the dotted line. For instance, she didn’t know that interest was increasing the size of her debt burden while she was in school for four years.

The easy answer is to give high school students more financial knowledge. That’s why we’re all here. But more deeply, how can we help our students be better prepared and possibly even avoid taking on too much debt? Where does the responsibility lie?

Deniszczuk: I want to congratulate Zina, who set a goal of becoming debt-free and achieved it. I’m sure it took a lot of hard work to do that but it paid off, literally. Again, I’m going to go back to the planning piece of this thing because I think that is extraordinarily important. You need to first decide what college is right for the student based upon the career they’re planning.

Not everyone knows the career they’re getting into. But they may know an area that they want to go into. For myself, I was very interested in math and chemistry and so forth. I ended up being an accountant, which I guess is somewhat close to the math piece. You may need to say that, ‘Hey, I don’t know what I want to do, so I need to pick a college based upon the fact that it gives me a wide variety of majors where I don’t have to be switching colleges.’

Second, look for ways to avoid borrowing before you even get into college. … There are lots of scholarships that go unclaimed each year. You’ve probably heard stories about that. Then you’ve heard stories about outstanding students who can’t get scholarships. But in fact there are lots of scholarships out there and some of them have very specific eligibility criteria. You need to research your scholarship opportunities early and try to determine what’s out there and what you have to do to get it.

Think about working during college to help offset costs. While it may not pay your tuition, maybe it’ll pay for books or other incidentals for college. Working in an area related to your career choice can also help make you a more desirable candidate when you’re looking for a job after college. My view is that any work you do during college will at least show employers your drive and work ethic, which are very important traits for any job.

Finally, family resources. It may be cheaper and less of a hassle — although maybe it would be more of a hassle in some families — to borrow from family members such as grandparents, if they have the wherewithal, before subjecting yourself to borrowing from external sources.

I was kind of shocked at the interest rates: 7% for private and 4.8% for federal. That’s a heck of an interest rate to pay. You might even convince a family member to make you a loan at 2% or 3%, which would potentially be a lot better than having to borrow externally. If you have to get a loan from an external source, shop around for the best deals, the same way you would when you’re buying the latest technology gadget on the Internet. You don’t pick the first deal you see. You shop around for the best deal. Not all lenders are the same and I don’t think they all have the same rates and requirements.

Once you graduate, you need to focus on getting that loan paid off. But I would say you also need to work on budgeting and making sure that you don’t ignore things like your retirement because I think that’s a very important long-term goal that people sometimes ignore because of the short-term types of budget constraints.

Lastly, as a CPA, I’d be remiss if I didn’t remind students and parents about the tax benefits that are available to college students under our tax laws. There are deductions and credits that can help to offset some of the expenses of higher education. There are tax benefits that a student may be eligible for that would assist in offsetting some of these expenses such as the Education Savings Bond Program, the American Opportunity Tax Credit, Lifetime Learning Credit and tuition and fees deductions.

Cappelli: The only thing I would add to that is one of the things we know from empirical evidence is that people in debt choose different career paths — and they’re not necessarily the career paths that they would have chosen otherwise. For example in law school, a big proportion of kids coming into law school think they want to do public interest law. By the time they graduate and look at their debts, they end up working for private firms because that’s the only way they can pay off their loans.

If you take out a lot of loans, it structures your choices on the way out. … It would be great through programs like this if we can get kids to be more sophisticated about loans. But it’s not just financial education. It’s also about life experience. When you’re 18 and you’re thinking about the future, your time horizons are just not quite the same. Something that is four years away seems like forever when you’re 18. But when you’re older and if you’re a parent, you know that it sneaks up on you pretty fast. You can imagine what this big debt burden will do to you in a way that somebody who’s 18 can’t.

We as adults dealing with high school students have to make them see how much of a burden this is going to be to have to pay off this much money. … There’s pretty much a calculator to help you with any of this stuff, but there are some that will do college loans and tell you how much you have to earn in order to take out various kinds of loans and pay them back.

The federal government has got a couple of really helpful websites. One of them will tell you, if you’ve applied for financial aid, what else you might have missed and whether there’s any kind of federal aid that might be available that you haven’t been offered yet. I would make use of these calculators. Also, just Google or research ‘calculator financial aid’ or ‘calculator loan payments’ or something like that. You’d be amazed at what will turn up. As adults, we have to make the kids not only understand at a cognitive level — here’s how much it will cost — but make them feel what this really means. It’s very difficult to do that at 18.

KWHS: A recent study suggests that nationwide, only 50 of more than 580 public four-year institutions graduate a majority of their full-time students on time. More time in college means more money put toward yearly tuition bills, and for some, even larger student loans that they must pay off when they leave campus for the real world. The time you spend in college is an important consideration when assessing the financial commitment of college. What are some other similarly important considerations — like a checklist for students, if you will, about things they need to think about in relation to the money they’re putting out and the debt that they might get into?

Cappelli: There are a bunch of things that are important to look at about the programs themselves. One of the biggest issues for students, but especially for their parents, is will I get out of here on time? If you go to the super-elite universities — like ours at the University of Pennsylvania — the graduation rate here is about 100%.

If you go to an elite state university, you’ll find graduation rates there are considerably less. One of the things that you’re buying at the elite universities is a lot of support. There are a lot of things that cause kids to struggle in college that are completely predictable. There’s a short list of them and in my book I summarize one of the short lists about the kinds of programs that help students succeed, like freshmen seminars.

After you arrive on campus, there are small classes dedicated just to you — to freshmen. They’re not available to all undergraduates. Only your peers are going to be in that class. You get a real professor. They get to know what you’re doing. They can sense when you’re having trouble. They’re hands-on classes.

There are a series of interventions at many schools where they require you to demonstrate your ability to take upper-level courses. They can basically predict whether you’re going to struggle in a class. It might be surprising, but a lot of undergraduates, maybe the majority, way over-estimate their ability to do things. One of the reasons they get into trouble is they take courses that are too hard for them. Many schools have programs that help you head that off.

More generally, is it the kind of college that has a very supportive atmosphere? … If you’re in trouble, they’re going to be able to figure it out and get you through. For parents, especially those who have a better sense of all the ways their kids can get into trouble, it is very important to look to see whether the college you’re thinking about has this kind of support system. If you’re thinking about making a financial bet, this is the place you want to spend your time and money because the most predictable thing that gets in the way of a good return on your education is if your kid gets into trouble and doesn’t graduate. That’s the worst outcome.

The second worst is they graduate but it takes them a very long time to do it. A lot of those things are predictable; a lot of them have to do with the nature of the college experience. Those are things you can figure out in advance.

Deniszczuk: My advice is to give yourself some options. Just don’t focus on one school. Look at a variety of schools. But … don’t give yourself too many options. I know so many parents that are looking at 10, 15, 20 schools with their kids. It gets to the point where the kids are just totally confused. The parents are totally confused as well because there are so many options. So narrow your list down to a reasonable number, but that number should be more than just one or two.

KWHS: Speaking of options, a student graduates from college mired in debt and quickly becomes overwhelmed with the drain on her starting salary paycheck. She misses some minimum payments. What are her options? What advice do you have for that student to help her manage her post college debt?

Deniszczuk: Twenty million Americans attend college every year. Of that number, 12 million, or 60%, borrow to help cover the cost of education. It’s important that students develop financial skills and knowledge to control their spending and their debt. First, the graduates should get organized. You compile a list of your loans and the name, web address, contact information for the lender, loan ID number, current loan balance, interest rate and date that the first payment is due. Make sure that you keep track of that.

You sign up for auto debit and with that service, your monthly loan payments are automatically transferred from your checking account to the lender. Now, you’ve got to make sure you have the amount in your checking account, otherwise you create a problem there. But it saves you the hassle of writing a check and the postage. … Sometimes a lender will give you a quarter to a half percent interest rate cut if you use the auto debit feature.

Now, if you can’t pay your loans and you’re going to miss a payment, you need to work with your lender before you start missing payments. You need to know when things are starting to run tight here. Talk to your lender early before you start missing payments, as opposed to just missing payments.

Sometimes there are some federal student loans that offer temporary suspension of the obligation to repay the debt, such as deferments or forbearances. It’s a good option for short-term financial difficulties. but make sure you note that even when there’s forbearance that interest continues to accrue. Then there’s alternate repayment plans, such as extended repayment plans that lenders can provide or income-based repayment to provide a lower monthly payment. These are best for longer-term financial difficulties, such as income that’s insufficient to pay the debt.

But again, all you’re doing is extending the problem. You’re going to be paying lower amounts so it’s going to take you longer to pay off the loan. What you need to do is if you’re in that situation — you’ve graduated but your income is not sufficient — you need to talk with your lender. Don’t ignore the loans because if you default you lose options such as access to deferments and forbearance and so forth. A default increases the cost of a loan because if you ever read the fine print in these loan agreements, once you default they can start charging you for all kinds of things in addition to just the principal and the interest.

It’s important for students to become financially literate. They need to use budgeting to monitor their spending and control spending, make sure they’re going to have enough money to make their payments in college and once they get out of college. It’s easy to say, but hard to do. Students really need to start thinking about their spending and budgeting. Write down what you spend, and determine whether you need that cup of latte at Starbucks every morning. If you cut that out maybe it would save you X hundreds of dollars a year, which could be used then to make loan payments.

The best way to ensure you don’t get in trouble with loans is to plan at the front end and maybe even before you take on the debt. What is the average starting salary for the profession I plan to go into? Will it cover my debt payments? If it won’t, then you probably shouldn’t be getting into that line of work. You should be looking at doing something else.

Cappelli: But there is one other thing to think about and that is a lot of these student loans are administered by private banks. But they’re actually kind of controlled by the federal government. The federal government has guidelines and help for students who are in financial trouble. There’s some evidence that not all the banks have been particularly forthcoming in terms of giving the students who are in trouble all the access to all the information and all the opportunities to deal with those special circumstances.

The other thing you want to do is check with the federal government. Don’t just check with your lender because the lenders haven’t all been terrific about this.… There’s not a ton of help but there are some kinds of help that you might be able to get if you’re in trouble.

KWHS: In this perfect storm over the past several years of soaring costs, rising student debt and shrinking job prospects, is college worth the investment?

Deniszczuk: Certainly, from my standpoint as a partner in a large accounting firm, we would only hire college students and we generally only hire college students from colleges that are well-known for graduating good accounting students.

I believe college is a worthwhile investment, with the appropriate planning at the front end. We talked about the fact that millennials with college degrees make an average of $17,000 or so more per year than peers with high school diplomas. Part of that might be again the fact that they’ve gone four more years. But I think that it’s important to note that this education pay gap has actually widened since Generation X. And you talked, Peter, about maybe that reversing. I don’t know. When you think about this being less of a manufacturing economy and more of a service economy, I wonder whether it will reverse and whether that pay gap will continue to widen.

There was a study done by The College Board, a non-profit organization, which showed that in general within 11 years, higher earnings and lower unemployment rates made up the cost of that education. And according to a report by Georgetown University, nearly two-thirds of job openings for workers will require some college or better going forward.

There’s going to be more and more demand for college graduates. It’s going to be important. You think about money and you think about getting jobs. But people with college degrees tend to keep their jobs during recessions, and tend to have lower unemployment rates over time than those with just a high school degree. Furthermore, it’s important to look beyond the financial compensation to measure the benefits of a college education.

Studies show that people with more education are in better health, their children are in better health, their marriages are more stable relative to people with less education. Those are factors that go beyond the financial piece that you might want to consider.

Cappelli: I’m not as sanguine as Mike on this. I don’t think there’s any guarantee, there’s nothing written up that says college has to pay off. There’s also the problem of the difference between causation and correlation. We know that college graduates do better on all kinds of things than high school graduates do. There’s strong reason to believe that would have been true even if they didn’t go to college because they come from families that have more assets. They come from a different social strata in society. They come to college with a different set of values.

It’s pretty hard to know why it is that college graduates do better than high school graduates. One explanation is that they learned a lot in college that’s useful. But another is that they came to college already with many more assets than the kids who don’t go on to college. There’s also some evidence that maybe in college they’re demonstrating something, like the ability to work hard that causes them to be able to get a better job because they’ve demonstrated perseverance in a context where employers can see it.

I wouldn’t pay much attention to forecasts because the forecasts have proved to be incredibly wrong. But here’s some counter-evidence: Of the 20 fastest growing jobs in the U.S. right now … only one requires a college degree. Roughly, the average American has a third more education than their current job requires. The fact that U.S. college graduates have lower unemployment rates than high school graduates is because college graduates take the jobs that high school graduates would take when the economy is down, which is what’s been happening now.

It isn’t true around the world. If you look at China, for example, the unemployment rate for college graduates — the official rate — is over 50%. The unofficial rate is probably 75%. The unemployment rate for high school grads in China is 4%. What’s going on there? In China, the college graduates won’t take the jobs that the high school graduates take because they think it’s beneath them. In the U.S., we’re willing to do it.

The fact that college graduates make more doesn’t answer the question of whether college pays off. Whether college pays off means whether the investment you’ve made in college is going to earn a return that is enough to at least pay off the investment you’ve made in it. And that doesn’t appear to happen for everybody, even if it happens on average. As I said before, at about a quarter of the colleges, the rate of return is negative. And it’s certainly well below roughly the 7% or so many people have to pay in order to get to college in the first place because of student loans.

The reason that matters is you’ve got to think carefully where you’re going to go because there’s no guarantee that it will pay off. The jobs which seem to be great for college students now — the ones you hear so much about like many of the tech jobs — are often boom and bust jobs. The hottest job in America last year was petroleum engineer — paying like, $97,000 a year for a college graduate or almost 50% more than the next highest paid job. But kids poured into that field and the market reversed because oil prices dropped. That job is about to become a bust now.

The problem is it’s unpredictable. Because of that, you have to think carefully about where you go, how you pay for it, and especially keeping your options open. Many people find over the course of their career they’ve got to change directions a lot. Many people find even in college they change directions a lot. I would think about keeping your options open as well as … determining whether this is going to pay off for you.

KWHS: You mentioned the boom and bust of petroleum engineers. Can you talk a little bit more about that? How students can find out if their major in say, psychology, is actually going to pay for them so they don’t go down a path that ultimately prevents them from becoming employed and paying off the loans that were supposed to help get them a job in the first place?

Cappelli: There’s been a huge shift over time in college toward vocational degrees. Liberal arts has shrunk to almost nothing. The biggest major in college right now is business, which has three times as many majors as the next highest major. It is a very vocational world now in terms of college. One thing you can do is look back on the experience of other people in that field. One of the things we know about engineering and IT, for example, which are currently the darlings of job opportunities, is they’re boom and bust fields.

It’s not just that engineering is hot or IT is hot – it is particular fields within IT and particular fields within engineering. One of the problems of a specialty like petroleum engineering is that if they’re not hiring in petroleum engineering, you’re not going to do electrical engineering. You can’t easily shift to some other field within engineering. So, you want to think carefully before you go into a boom-and-bust field. You also want to think past the first job to where this career or degree will take you. It could be, as in IT, that there are great opportunities the year you graduate but after about five years we see in the field of IT incredible out-migration. That is, people leave the field to do other things. It isn’t a career that lasts very long — it lasts maybe five years for most people.

If that’s the case, even if the first job pays well, is that a good position for you? About as good as you can do is look at the track record in the field that you’re trying to go into, over time. But I would also say it’s very important to be able to delay your career choice until as late as possible.

If you’re in the IT field, for example, it’s rarely been the case that generic IT degrees pay off in big way. It’s the case that very specific sub-fields pay off and it’s impossible to know those four years in advance. But it is possible to know one year in advance. If you delay until the last year some of your more practical, very specific classes, there’s a better chance you’re going to be able to match up to the market. Being able to delay your choice of major until you get a sense of what the market is like is much better. If there’s only a two-year delay, you’ll be much better off than if you were trying to pick your career when you’re a senior in college where it’s almost impossible to tell what the market’s going to be five years into the future.

Deniszczuk: But I would say that if you are interested in IT, getting involved in IT courses, even on a general basis early on, would be helpful because then in your senior year you can make that change to something much more specific and you’ve got all the background courses that you needed in order to achieve that.

Cappelli: That’s probably true. It’s also true that most college kids now — parents might not know this — graduate with a fair amount of IT experience anyway because they’re using it in all their courses. For many employers, that’s what they’re after. So, you might not even need an IT degree in order to get an IT job. We forget that in Silicon Valley when it got started, only 10 percent of the people working in Silicon Valley had any kind of IT degree — and yet they built the entire IT industry.

KWHS: Jeanne Paseman, a teacher at Centennial High School in Idaho, says she knows high-performing students who have been admitted to prestigious private colleges where they will have to borrow in excess of $25,000 per year in order to attend. In addition, these students also have generous merit scholarships to state schools. She wonders, is it worth taking on considerable debt in order to attend a prestigious college? Is it easier for students from prestigious colleges to get jobs? And are they hired at higher salaries than students who attend state universities?

Deniszczuk: There is a fairly high correlation between the reputation and rankings of universities and future earnings. Ivy League graduates do quite well by both measures, with Princeton ranked sixth and Harvard eighth in PayScale’s rankings on mid-career median salary. Graduates of top schools also argue that the network and contacts they make during college are the most valuable part of their experience. That’s something you might not be able to get at a community college and certainly not at a trade school.

Research shows that elite schools more clearly appear to generate a worthwhile return on investment as employers are willing to pay higher salaries to those folks. The more elite schools on average provide a broader diversity of experience, bringing in students from around the world in many cases as opposed to around just your community perhaps.

All that being said, as someone who attended a state university, my view is that there are several affordable colleges and universities where you can get an excellent education and end up with an excellent and rewarding career. According to studies, your choice of field matters more than your choice of college in many cases. After controlling for ability, the earnings differences of graduates from elite and non-elite institutions are small at best. Any earnings advantage that may emerge over the long run is difficult to concretely tie back to the effects of one’s college choice.

I have a quote from a Forbes contributor, Rick Smith, and it matched what I felt. The quote is, “In the end, perhaps it is ambition that ultimately points most accurately toward where you are headed in life. If you attend an elite school you can take advantage of all that it offers. If you do not but are equally ambitious, it seems you are not disadvantaged over the long term. Anyone making a decision about education should consider not just cost and prestige but also factors like, career services and alumni network, expectations of the campus experience itself.”

In other words, life is often what you individually make of it. If you’re ambitious, you have initiative and you work hard, you can be successful no matter what college you attend.

Cappelli: It’s probably a good point to remind ourselves that the college experience has a lot to do with things other than just getting a job. It might very well be that you’re getting a bunch of stuff from elite schools that are quite expensive which you’re not getting from cheaper schools, particularly state universities. It’s hard to put a dollar figure on that. One of the things that you do get is much higher graduation rates as people graduate on time. And people tend to report nice experiences from these places — that counts as something.

The other thing we know is that it’s difficult for students to do well when they’re going to schools that are not their first choices. If they are going to a school they didn’t really want to go to, it’s hard to get them motivated.

This isn’t personal opinion. There are studies looking at these sorts of things. It is true that [there are] interesting studies that looked at students who were admitted to very elite schools who went to schools that were less elite. They followed them up after afterwards to see how well they did just in terms of money, and there wasn’t much difference. Now, you might say that that proves the issue it’s really the selection into the colleges that matters rather than what happens to the kids when they’re there.

Another way to say it is that college is only one of many factors that affect your wages going forward. But there’s some contrary evidence as well. There was some evidence in the state of Texas that shows that kids who graduated from the elite university in the Texas system, which is frankly, University of Texas at Austin, did much better than their peers who graduated from other schools.

Now, the problem there is that it is actually pretty difficult to control for ability differences because the colleges are selecting people based on all kinds of things which aren’t easily measure by things like SAT scores. So, it’s a little tricky to make the decision. If you’re worried just about money then it’s probably not worth it — particularly to borrow money to go to an elite college. If you’re worried about the experience and it’s a place the kid really wants to go to for all kinds of reasons that make sense, then it’s a consumption decision. For a lot of parents, college is about consumption. They’re going to spend money on their kids one way or the other. They have enough money to pay for it. If that’s the case, then maybe you could justify it. But it’s a consumption decision rather than an investment decision.