Will Your Child Be Priced Out of a College Education?

Source: Flickr user Ashley Basil.

Look back even a few decades, and you'll see a job landscape far different from today's. Back then, a college degree wasn't a prerequisite for landing a job. Rather, hands-on skills were what mattered most.

Today, of course, that's not the case. A college degree has practically become a necessity for millennials who hope to have any chance of snagging the job of their dreams. Not only is a degree becoming an expectation among employers, but it's also Americans' primary means of moving up the economic ladder during their lifetime.

College: Is it worth it?
According to a study from the Pew Research Center released this past February, millennials aged 25 to 32 with a four-year bachelor's degree earned a median of $45,500 in annual earnings in 2012. By comparison, millennials in the same age range who were only high school graduates earned a median of just $28,000 annually.

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This $17,500 gap equates to $700,000 over the course of a 40-year working career -- and the gap is widening dramatically with each generation. By the time current grade school kids graduate high school or college in 10 to 15 years, we could be staring down a $1 million lifetime earnings gap between those who have four-year degrees and those who only have high school diplomas.

Undeniably, this data demonstrates that your child should go to college. However, going to college can sometimes be the greatest obstacle of all -- and it has little to do with a students' grades.

The greatest challenge your child faces
According to a recently released study from Junior Achievement and PwC, student loan debt is perhaps the biggest roadblock that prospective college students and their families currently face.

One of the most alarming statistics from the report comes from the Higher Education Research Institute's report "The American Freshman: National Norms." Their research showed that 57% of students chose not to attend their first-choice college last year -- the highest percentage on record. Analysts speculate that this owes to the high costs of a college education.

Data from the U.S. Department of Labor would seem to concur. Between 1985 and 2013, college tuition expenses rose by an astronomical 538%, while medical costs jumped 286% and the Consumer Price Index (a measure of inflation) rose 121%. The rapid increase in college costs has ballooned the demand for student loans and made the choice to attend a state college a difficult for some families.

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Specifically, Junior Achievement and PwC note that 60% of millennials believe financial aid is the deciding factor in their school choice. Of the aforementioned students who chose not to attend their first school choice, a whopping 62% noted that they simply couldn't afford it, while one-quarter said their top-choice school didn't offer anything in the way of financial assistance.

According to the study's findings, 21% of millennials cited student loans as either theirs or their family's primary financial problem. One-third of millennials surveyed are currently paying $300 or more per month toward student loans, while 5% are paying more than $1,000 per month. That's a staggering sum of money, and it's more than enough to deter students from taking out a loan.

A recent survey conducted by Mintel corroborated these concerns in a poll of more than 2,000 adult Americans. In its study, just one in five people thought it was a smart idea to take out a student loan to get a college education in hopes of landing a well-paying job. To add context to these figures, more than half of all respondents in 2012 believed a student loan was a smart investment.

Are students wising up?
As some students in Junior Achievement and PwC's study have been priced out of their top college of choice, it would appear that others could be wising up -- or at least recognizing ways to obtain a quality college education without placing a massive financial burden on themselves or their families for years to come.

Source: TaxCredits.net via Flickr.

As of April 2013, only 40% of Americans with student loans felt "very confident" in their ability to pay back those loans. By 2014, that figure had actually risen to 50%.

Furthermore, nearly one-quarter of students believe their student loans will eventually be forgiven. For those unfamiliar, Americans with student loans who meet certain income eligibility standards can pay a designated percentage of their income toward their loan for a period of 20 years. Even if they haven't paid off their full student loan once the 20-year period is up, the balance may be forgiven.

What's a student to do?
Clearly, the first step for students and parents alike is to find a college that offers a positive return on investment. Taking into account tuition expenses, fees, and possible student loans, as well as the job a student intends to land after graduation, you want your earnings to greatly exceed the dollar amount put into your education.

Historically, this hasn't been easy to measure. Thankfully, PayScale has put together a list of 20-year net return on investment totals for more than 1,300 colleges around the country, taking into account the median salaries of roughly 1.5 million graduates from these schools and comparing these returns to their former college's 2013 four-year tuition costs (both in-state and out-of-state, in some cases). With the exception of highly specialized schools, the general trend is that you don't necessarily need to go to an Ivy League school to get a high return on your education investment. In short, students should seriously consider state and local colleges if it means not going too deeply into student loan debt. 

Source: Flickr user Steven S. 

In addition, students should really focus on their grades and SAT/ACT scores with the ultimate goal of landing a scholarship. Scholarships, based on data from The College Board, reduced the average tuition price paid by students and their parents by roughly 65% in 2012-2013, which is no pocket change, considering the price of an education today. Applying to more than one school in the hopes of landing scholarship money could be the smart move here for students. 

Ultimately, student loans can actually be a good thing if they're used properly. Not everyone will qualify for a scholarship, so making smart decisions about where to attend college can go a long way toward maximizing your return on investment and quickly paying off your student loans before they become burdensome.