{"id":2427442,"date":"2025-05-30T02:40:00","date_gmt":"2025-05-30T06:40:00","guid":{"rendered":"https:\/\/monetizemail.com\/magatoon\/?p=2427442"},"modified":"2025-05-30T06:55:05","modified_gmt":"2025-05-30T10:55:05","slug":"returns-to-college-investments-requiem-for-a-financial-dream","status":"publish","type":"post","link":"https:\/\/monetizemail.com\/magatoon\/2025\/05\/30\/returns-to-college-investments-requiem-for-a-financial-dream\/","title":{"rendered":"Returns to College Investments: Requiem for a Financial Dream"},"content":{"rendered":"

It\u2019s really not a simple task to figure out if college is \u201cworth it<\/a>\u201d \u2014 financially speaking or even personally<\/a>.<\/p>\n

Some obvious empirical problems in calculating the returns on a college degree include separating inherent ability (work ethic, IQ) from whatever skills or knowledge were actually acquired through college \u2014 or perhaps just being<\/em> in a college environment. \u201cHigher education ought to make students brainier and richer,\u201d reported The Economist<\/em><\/a> last year. \u201cIt too often fails to do either.\u201d\u00a0<\/p>\n

Raw, unadjusted comparisons between groups with and without a four-year undergraduate degree often show income premia in the hundreds of percent<\/a>. That implies that college makes good financial sense, but such superficial analyses overlook three things:<\/p>\n

First<\/strong>, you\u2019re comparing different people with one another. There might be important differences (inherent abilities, work ethics, etc.) between the people who do or do not complete a four-year degree. To the extent that you would have earned a higher salary with or without a university degree, these figures overestimate the financial return to college itself.<\/p>\n

Second<\/strong>, those with college degrees typically incur significant costs, in the tens of thousands of dollars a year, to attend said colleges, saddling them with interest payments for years to come. This puts them well behind<\/em> their peers in a lifetime-income comparison. (The \u201cToll of Student Debt in the U.S.,\u201d as The New York Times<\/em><\/a> put it, is well-publicized and acutely on millions of people\u2019s minds.)<\/p>\n

Third<\/strong>, the relevant comparison group spent years earning income and acquiring assets \u2014 even if that\u2019s only drawing rights in a pension scheme or stocks in a 401(k) account \u2014 that in turn throw off some sort of income, while the college-going crowd partied away years of their life (and maybe their family\u2019s savings) that had obvious opportunity cost<\/a> in buying stocks or real estate or starting a business.<\/p>\n

It takes a lot of extra income to overcome the negatives of debt and missing out on earnings, plus promotions and learning-on-the-job that over time provide the most tangible increases in wages over a person\u2019s career.\u00a0<\/p>\n

The two relevant components that make or break a college-return calculation<\/a> are the extra earnings you can expect to bring in over the course of your career and<\/em> the costs you incurred for attending it. They work in tandem, and make the assessed return of investment U-shaped; the returns are highest for the extremely elite universities, where extra earnings dominate (but this only holds for the very top<\/a>). That\u2019s followed by in-state or much cheaper public flagship universities since their comparatively lower expenses dominate. The rest of the private, elite, and higher-rated, prestigious universities are clustered in the middle, providing mediocre returns.\u00a0<\/p>\n

I recently tried to make these very abstract and counterfactual considerations more concrete by looking at my own records. While I can\u2019t assess which career opportunities I found precisely <\/em>because of my debt-financed education, I can assess the financing side of things\u2026 and it\u2019s incredible how much the financing<\/em> itself<\/em> has mattered, as is the case with many financial assessments, from mortgages to Warren<\/a> Buffett<\/a>\u2019s investment returns<\/a>.<\/p>\n

We can call it the carry trade<\/a> of attending university: you can sidestep some of the student debt troubles, including the well-known obstacles they pose to a thriving financial life<\/a> so well-publicized elsewhere, if you finance your college education with cheap, depreciating<\/a> <\/strong>debt.<\/p>\n

The horror stories of so many Americans, whose student debts often run in the tens or hundreds of thousands of dollars, miss on both of those accounts. They\u2019re not cheap, and they\u2019re issued in the world\u2019s dominant currency so they won\u2019t receive the windfall of a structurally depreciating currency.\u00a0<\/p>\n

Federal <\/a>subsidies<\/a> and intransparent T&C about interest rates and payback times, combined with college recruiters overpromising about future career prospects and realistic income trajectory, have created the debt mess that is America\u2019s student debt debacle<\/a> \u2014 now almost a tenth<\/a> of all household debt. The average rate on federal student loans runs 6.5%-9%<\/a> (undergraduate vs graduate degrees); private loans<\/a> can run well into the double-digits.\u00a0<\/p>\n

I repeat: This is not<\/em> cheap, at least not unless price inflation (and wages) are increasing at similar rates (which they only did briefly during the post-pandemic years). Out-earning that interest, let alone setting aside funds for repayment, is going to be challenging even for the most prosperous of households.\u00a0<\/p>\n

For my own story, the constantly increasing debt figure during my student years was definitely terrifying to look at in a spreadsheet or repayment account, but it was cheap and safe debt that I couldn\u2019t have had access to any other way \u2014 and, overshadowing anything else, issued in SEK: Between the time I drew my first student debt liability (August 2012) and I received my last payout (April 2018), the currency in which these debts are denominated (SEK) depreciated against the U.S. dollar by 32%<\/em>. Thank you very much. (In the years since, it depreciated a further 11%, or 28% if I had had the foresight to make these calculations before<\/em> Trump\u2019s tariff<\/a> announcements wreaked havoc on the DXY<\/a>).\u00a0<\/p>\n

There are even some moments where the unidirectional movements of USD\/SEK more than compensate for the increase in my debt load: For most of my second year of college, I was technically getting paid by financial markets to squander money at university<\/em>.\u00a0<\/p>\n

This only works if I service my student debts with dollars \u2014 which I am, and which I probably wouldn\u2019t have done had I not gone to elite universities abroad. Financially speaking, that\u2019s a hedge.\u00a0<\/p>\n

The logic<\/a> here, of a monetary economy so fueled by credit expansion and a reserve-currency center of the world sucking most assets into its gravity, is that debts, to acquire appreciating assets, are good so long as you can service them. I would never have had the guts, nor the incentives, to do this if I couldn\u2019t have access to this most obvious of currency windfalls<\/a>.\u00a0<\/p>\n

With monetary devaluation in the background, you\u2019re constantly working against<\/em> the monetary tide, one of the most powerful forces know to mankind \u2014 like trying to constantly walk uphill in one of those tandem staircases found at amusement parks. But that same force also devalues the real burden of your previously incurred debts<\/a>. In some important ways, this is how much financial return manifests itself; it\u2019s part of the reason why real estate companies or private equity firms use as much financial leverage<\/a>, i.e., debt as they do: short the currency. The formula is to take out debt that depreciates in real terms while the assets you\u2019re acquiring appreciate.\u00a0<\/p>\n

I\u2019m reminded of an absurd observation, delivered in a timely online meme format courtesy of Twitter user \u201cSweep<\/a>\u201d: \u201cWhen the NFT you bought isn\u2019t worth 1 ETH anymore, the ETH isn\u2019t worth $4K anymore, and the $4K isn\u2019t worth $4K anymore.\u201d<\/p>\n

The $1,500 or so I added to my debt balance on average every month during my student years doesn\u2019t buy the same things they did when I received those funds. It is easier for me to earn back that nominal quantity in 2025 than it was a decade ago. A million bucks isn\u2019t what it used to be<\/a>. Some of the (meager) assets I acquired in the meantime have appreciated at a much higher rate than the interest expense required to service this scarily looking pile of debt.\u00a0<\/p>\n

A college experience might be worth it even<\/em> if<\/em> it doesn\u2019t make much financial sense. But read the fine print and definitely mind the rates, repayment conditions, and monetary background before you saddle your future self with intimidating debt burdens.\u00a0<\/p>\n

The post Returns to College Investments: Requiem for a Financial Dream<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s really not a simple task to figure out if college is \u201cworth it\u201d \u2014 financially speaking or even personally. Some obvious empirical problems in calculating the returns on a college degree include separating inherent ability (work ethic, IQ) from whatever skills or knowledge were actually acquired through college \u2014 or perhaps just being in …<\/p>\n","protected":false},"author":86,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2427442","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2427442","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/86"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2427442"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2427442\/revisions"}],"predecessor-version":[{"id":2427443,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2427442\/revisions\/2427443"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2427442"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2427442"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2427442"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}