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Is college worth it?

world Updated: Sep 12, 2010 00:49 IST

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

Especially in well-educated areas, like the nation's capital, this is expected. It's a rite of passage, part of an orderly progression toward success.

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," says hedge fund manager James Altucher. Altucher, president of Formula Capital, says he sees people making bad investment decisions all the time and one of them 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," Altucher, 42, says.

"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, it turns out, 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 own 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 analysing 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 thinks he would have been better off getting the real-world lessons earlier, rather than thrashing himself to pay for school and shouldering so much debt.

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

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

Few families have that kind of money lying around. But if you can give your child $10,000 or so to start his own business, Altucher says, your child will reap practical lessons never taught in a classroom. Later, when he's more mature, 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," says Richard Vedder, an economics professor at Ohio University who has been studying education issues.

"It's become more and more problematic about whether people should be going to college."

Now take a key argument in favour of getting a four-year degree, the one that says on average, those with one earn more than those without it. 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. This means that, for those with a bachelor's degree, the middle range of earnings was 53 per cent more than for those holding only a high school diploma.

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 says.

"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 Wal-Mart," he says.

"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. Back in 1970, when the overall unemployment rate was 4.9 per cent, unemployment among college graduates was negligible, at just 1.2 per cent, says Vedder, citing Bureau of Labor statistics. But this year, with unemployment at 9.6 per cent, unemployment for college grads has risen in far greater proportion, to 4.9 per cent. In other words, it is more than half the rate for the general population. 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 says. "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? To the non-degreed billionaires' club headed by Microsoft's Bill Gates (Harvard's most famous quitter) and Apple's Steve Jobs (left Oregon's Reed College after a single semester), add: Michael Dell (University of Texas dropout), Microsoft co-founder and Seattle Seahawks owner Paul Allen (quit Washington State University) and Larry Ellison (gave up on the University of Illinois).

Success sans sheepskin isn't only for the technology set. David Geffen, co-founder of DreamWorks, bowed out of several schools, including the University of Texas. Redskins owner Daniel Snyder dropped out of the University of Maryland.

Perhaps these are unique individuals, in whom a driving entrepreneurial spirit outstripped the plodding pace of book-learning.

Or perhaps they point to a new model.

"There's nothing you can't do on your own," says Altucher.

Five dropouts who created history

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