by Casia Chappell, CFP®, CPWA
Vice President
Wealth Planning and Portfolio Management
The debate about the value of a four-year college degree has received renewed attention in light of media reports showing total annual costs for some private universities exceeding $100,000. Understandably, many families are reconsidering their higher education plans and evaluating other options including two-year degrees, trade schools, or a combination of starting at community college and then transferring after pre-requisites have been completed. Each pathway offers distinct advantages and disadvantages, including costs, future earning potential, varied student experiences and societal impacts.
For decades, the four-year degree has been considered the gold standard of higher education and associated with increased earning potential, a more advanced curriculum, and even higher life expectancy. The longer educational experience allows students to explore various subjects in greater detail and encourages critical thinking skills, intellectual curiosity and a deeper understanding of one's chosen field. Additionally, many students learn necessary life skills and benefit from significant personal growth during the traditional four-year college experience. Many professions require a bachelor's degree as a minimum qualification, therefore making a four-year degree essential for accessing certain career paths.
However, the annual cost and duration of a four-year program requires significant investment, which is then compounded by the opportunity cost of lost potential income during those additional years of study (and compounded even further if the student needs additional time to complete the degree, which many do). Student loans have been necessary for many students to pursue this goal; however, students and their families may experience financial stress associated with that debt in the decades that follow. Some students have found that significant student debt resulted in delayed home purchases, lower credit scores and less career flexibility and entrepreneurship. In contrast, two-year degrees offer a more affordable and expeditious route to higher education and subsequent employment and earning years. Community colleges and vocational schools typically provide these programs with a focus on practical skills and job-specific training. The lower tuition and fees as well as shorter duration make two-year degrees more accessible to a broader demographic, including non-traditional students and working adults seeking new skills to boost their earning potential or jumpstart a career change.
Nevertheless, the earning potential associated with two-year degrees often falls short of that afforded by four-year degrees. While graduates of certain vocational programs may secure well-paying jobs in specialized fields, they often have less transferable skills and the salary ceiling for many two-year degree holders remains lower compared to their counterparts with bachelor's degrees. Furthermore, some employers may prioritize candidates with four-year degrees for higher-level positions or managerial roles, limiting the career advancement opportunities for those with two-year credentials.
The differences in the student experience are another worthwhile consideration. Traditional four-year degree universities often include the opportunity to live on or near campus, which can expose students to people of different backgrounds in a shared environment. It can also be an important step towards adulthood and independence for young adults that provides a balance of freedom, structure and responsibility.
The combination of starting higher education at a community college before transferring to a four-year degree program is an increasingly attractive path for many students. This alternative can provide significant cost savings, an opportunity to explore different academic and career paths and in some cases, an easier ability to pursue part-time employment. As illustrated in the graph below, recent estimates show this option can provide 40% savings. It can also be attractive for students who may not be ready academically or personally for a four-year degree program.
Careful consideration should still be given to the combination path as not all credits are transferable to all four-year institutions and degree programs. Moreover, some students may find the appeal of current income overrides their willingness to pursue a four-year degree and increased future earning potential.
Beyond the individual considerations, the societal benefits of both four-year and two-year degrees are well-documented. An educated workforce is necessary for innovation, irrespective of the pathway chosen, and contributes to economic growth and broader employment. The four-year degree curriculum often fosters critical thinking, cultural awareness and civic engagement, enriching society. The specialization of two-year degrees can help address demands for a skilled workforce within specific industries, including healthcare and information technology.
There have been several legislative efforts made in recent years to address higher education affordability, particularly related to 529 college savings plans. These tax-advantaged accounts remain one of the preferred account types for education savings for many reasons. Recently they have become even more valuable thanks to an expanded definition of “qualified expenses” to include trade schools, the ability to use plan funds to pay down student loans and even roll excess funds to a tax-free Roth IRA for the beneficiary. Additionally, employers can now use student loan payments as a qualification for making “matching” contributions to 401(k) plans on behalf of their employees who may want to save for retirement but can’t afford to do so yet because of their student loan obligations.
Regardless of the path chosen, the overwhelming positive impact of higher education at both the individual and societal level continues to exist despite the associated cost of attending. The optimal path for each student and family will depend on a combination of goals, resources and individual circumstances. Reach out to your portfolio manager to discuss how to best plan and save for your family’s education goals.
Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. We believe the information provided is from reliable sources but should not be assumed accurate or complete. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.