It sounds like the worst of all worlds — borrowing money for college, then dropping out and facing the debt without a degree.
But a new study argues that the investment in even a partial college education is still worth it, amounting to average earnings of $100,000 more over a lifetime than for those who merely finish high school. That's a better investment return on average than stocks and bonds — though of course much lower than the return on college for those who finish.
"It is vastly better to get a college degree," said Adam Looney, policy director at The Hamilton Project, the Washington, D.C.-based think tank that authored the report. "But I think the evidence says that fears of dropping out, that there are big downside risks to trying it and not finishing it, I think those are overblown. For people who are interested in college, who have ambitions of going and have the ability and qualifications to succeed, I think the evidence suggests it's an extremely good deal right now."
The question is pressing because around half of beginning college students now borrow to help pay for college. The latest figures from the Project on Student Debt found two-thirds of the college class of 2011 had debt at graduation, averaging $26,600.
But the bigger concern is those who don't graduate. Overall, barely half of college students nationally complete within six years, according to data compiled last fall by the National Student Clearinghouse Research Center (though three-quarters of students who attend full-time manage to complete within six years). Student debt collection agencies don't care whether or not you got your diploma.
The proportion of borrowers who fail to complete has risen to about 29 percent as of 2009, according to a recent report by Education Sector, another think tank. That report highlighted the plight of such borrowers, noting they had substantially higher default rates on student loans — 17 percent, compared to 4 percent for those who borrowed but finished a degree.
It's easy to see why more struggled to pay off their loans: Those with a bachelor's degree earn on average $32,000 more than those who've completed just some college.
But the new report notes those with some college still earn $8,000 more per year than those with only a high school diploma. The report also notes that the national unemployment rate reported last week in the combined category that includes those with some college or an associate's degree was 6.5 percent — below the national average of 7.6 percent for people 25 and over..
The rate was 7.4 percent for high school graduates with no college, and 3.8 percent for those with a bachelor's degree.
Looney said the report reflects a well-established literature that even small increments of additional education pay off. The Hamilton Project report calculated the average annual investment return on a partial college education at 9.1 percent annually. That's well below the return of more than 15 percent annually on a bachelor's degree, but better than the historical average of conventional investments including stocks, gold and housing.
"From a broad perspective it's never been a better time to invest in education because the labor market is just screaming out for those skills and credentials," Looney said.
Still, these figures represent averages, and there's no such thing is a generic college degree. The labor market value of any degree varies substantially depending on factors like major, institution and grades — as does the likelihood of failing to complete.
Education Sector, for instance, reported that more than half of students who borrowed to pay for a bachelor's degree at for-profit colleges drop out, compared to around 20 percent at public and private non-profit 4-year colleges.
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