College isn't the golden investment it once was

WASHINGTON — Across the country, parents are kissing their college-bound children — and potentially up to $200,000 in tuition, room and board — goodbye.

This is expected, especially in supremely well-educated areas.

Or is it herd mentality?

Hear this, high achievers: If you crunch the numbers, some experts say, college is a bad investment.

"You've been fooled into thinking there's no other way for my kid to get a job ... or learn critical thinking or make social connections," hedge-fund manager James Altucher said. He says he sees people make bad investment decisions all the time — and one is paying for college.

College is overrated, he says: In most cases, what you get out of it is not worth the money, and there are cheaper and better ways to get an education. Altucher says he's not planning to send his two daughters to college.

"My plan is to encourage them to pursue a dream, at least initially," said Altucher, 42. "Travel or do something creative or start a business. ... Whether they succeed or fail, it'll be an interesting life experience. They'll meet people; they'll learn the value of money."

Certainly, you'd be forgiven for thinking this argument reeks of elitism. After all, Altucher is an Ivy Leaguer. He's rolling in dough. Easy for him to pooh-pooh the status quo.

But his anti-college ideas stem from personal experience. After his first year at Cornell University, Altucher says his parents lost money and couldn't afford tuition. So he paid his way, working 60 hours a week delivering pizza and tutoring, on top of his course load.

He left Cornell thousands of dollars in debt. He also left with a degree in computer science. But it took failing at several investment schemes, losing large sums of money and then studying the stock market on his own — analyzing Warren Buffett's decisions so closely he ended up writing a book about him — for Altucher to learn enough about the financial world to survive in it. He says he believes he would have been better off getting the real-world lessons earlier.

It's cold comfort, but the loans put him in good company: The hundreds of billions of dollars of national student-loan debt has overtaken credit-card debt, The Wall Street Journal recently reported, using numbers compiled by FinAid.org, a website for college financial-aid information.

"There's a billion other things you could do with your money," Altucher said. One option: Invest the money you'd spend on tuition in Treasury bills for your child's retirement. Altucher noted that $200,000 at 5 percent a year over 50 years would amount to $2.8 million.

Few families have that kind of money. But if you can give your child $10,000 or so to start a business, Altucher says, your child will reap practical lessons never taught in a classroom. Later, when he or she is more mature and focused, college might be more meaningful.

The hefty price tag of a college degree has some experts worried that its benefits are fading.

"I think it makes less sense for more families than it did five years ago," said Richard Vedder, an Ohio University economics professor who has been studying education issues. "It's become more and more problematic about whether people should be going to college."

That applies not only to astronomically priced private schools but also to state schools as well, where tuitions have spiked. Tuition and fees are $8,701 at the University of Washington's main campus, after a 30 percent increase in tuition over two years. At Washington State University, where mandatory fees are higher, a two-year, 30 percent tuition increase boosted the total cost to $9,488. Tuition at Seattle University this academic year is $30,825, up 5.1 percent from 2009-10. Fees at Seattle U. are broken out separately and vary.

Student loans can postpone the pain of paying, but they come due when many young adults are at their most financially vulnerable, and default rates are high. Even community colleges, while helping some to keep costs down, prompt many to take out loans — which can land them in severe credit trouble.

According to a report in the Chronicle of Higher Education, 31 percent of loans made to community-college students are in default. (The same report found that 25 percent of all government student loans default.) Default on a student loan and face dire consequences, beyond a bad credit record — which can tarnish hopes of buying a car, renting an apartment or even finding a job: Uncle Sam can claim your tax refunds and wages.

Now take a key argument in favor of a four-year degree, the one that says those with one typically earn more than those without. Education Department numbers support this: In 2008, the median annual earnings of young adults with a bachelor's degree was $46,000; it was $30,000 for those with a high-school diploma or equivalent.

But a lot of college graduates fall outside the middle range — and many stand to make considerably less.

"If you major in accounting or engineering, you're pretty likely to get a return on your investment," Vedder said. "If you're majoring in anthropology or social work or education, the rate on return is going to be a good deal lower, on average.

"I've talked to some of my own students who've graduated and who are working in grocery stores or Walmart," he said. "The fellow who cut my tree down had a master's degree and was an honors grad."

The unemployment rate among those with bachelor's degrees is at a longtime high. In 1970, when the overall unemployment rate was 4.9 percent, unemployment among college graduates was negligible, at 1.2 percent, says Vedder, citing the Bureau of Labor Statistics. But this year, with unemployment at 9.6 percent, unemployment for college grads has risen in far greater proportion, to 4.9 percent. The bonus for the educated, Vedder says, is "less pronounced than it used to be.

"The return on investment is clearly lower today than it was five years ago," he said. "The gains for going to college have leveled off."

Before hackles are raised about boiling the salutary effects of higher education down to their cost, there are obvious disclaimers: Education is a priceless thing. Many high-school graduates are not ready for independence and adult responsibilities, and college provides a safe place for them to grow up. For a fee.

But what about the lessons offered by the success stories that have unspooled along a different path? Dropouts such as Microsoft co-founders Bill Gates and Paul Allen are the toast of the dot-com world.

"There's nothing you can't do on your own," Altucher said. A provocative idea — and a liberating one. Even if it's not entirely true.

But you don't have to agree fully with Altucher to concede that the debt-stress many graduates or their parents — or both — are left with after tossing off the cap and gown works against the merits of the degree. Even if a child doesn't party his way through college, chances are the child or family has plowed a boatload of money into a few memorable classes and a lot of boredom.

Nelson Cortez, 20, is starting his third year at the University of California, Santa Cruz. He has received state grants and works 15 hours a week while in school, but he estimates he's already nearly $25,000 in debt from unpaid loans. This is why, when the California Board of Regents last year announced a 32 percent increase in fees, he joined the protests that galvanized California students — and set off similar protests across the country.

Cortez questions whether he's made the right decision: "Am I going to be able to afford it, should I take a semester off? ... I do have in the back of my mind, would it be better not to have those loans and just work?"

According to the Education Department, between 1997-98 and 2007-08, prices for undergraduate tuition, room and board at public institutions rose by 30 percent, and prices at private institutions rose by 23 percent — after adjustment for inflation.

"The reason colleges have been getting away with raising their fees so much is that loans allow parents to tough it out," Vedder said. Federal government moves such as tuition tax credits do little to alleviate the financial burden, he says, adding that they give colleges an excuse to raise costs further.

The cost of college is putting the financial screws to an entire generation, student activists say.

"I think it's absolutely despicable that students are asked to pay that much," said Lindsay McCluskey, president of the United States Student Association. "In terms of public education, you can't even call that public when students are taking out an average of $25,000 to complete college, and then are paying off student-loan debt until they're 50 or 60 years old."

"For my generation," said McCluskey, 23, "that loan debt is taking the place of the house we could be buying or a number of other investments we could be making in our lives. The loan debt just sucks a lot of that out."

Now consider Jeremiah Stone, 25. The high-school graduate is living in Paris, pursuing a drool-worthy international career as a chef. After high school, he took a job as a barback in a Houston's, worked up to kitchen assistant, took a nine-month cooking course at the French Culinary Institute in New York and then landed in France, where he has freelanced as a chef. He eventually hopes to open a restaurant in New York.

"People I meet for the first time, they're always saying, 'Oh, if I had another career I'd be a pastry chef instead of becoming a lawyer,' " Stone said. In the eyes of friends, he says, he's become emblematic of simply doing what you love. In his case, not following the herd was the best investment of all.

Seattle Times staff

contributed to this report.