Legendary investor Warren Buffett went to college — twice, in fact. Buffett holds a bachelor’s degree in business administration from the University of Nebraska, where he transferred after spending two years at The Wharton School of Business at the University of Pennsylvania. He then went to Columbia University and got a master’s degree in economics.
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But it was more his father’s idea than his own. Buffett wasn’t sold on college for himself. He told Yahoo! Finance in a 2019 interview, “My dad kind of jollied me into it. He could get me to do anything. If they’d had an SAT test, in those days, he would have taken the test for me.”
Does Everyone Need to Go to College? Buffett Says No
The ethics of having your father take the SATs for you notwithstanding, Buffett has quite a bit to say about the necessity and the economics of a four-year college education.
Recognizing that college is expensive, Buffett explained, “It’s a big commitment to take four years, and the cost involved, and maybe the loans involved. There ought to be a reason you’re going.”
Buffett recognizes that college is not right for every person and should not be a requirement for every job. “Some people are going to get a lot out of advanced education and some people are going to get very little,” he said. “I don’t even think it’s important that every person go to college at all.”
“We have all kinds of jobs at $70,000 or $80,000 a year (for which) college training is not of use,” Buffett said. And it’s true that jobs that do not require a college degree are increasingly in demand as there are fewer workers to fill them.
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The Cost Benefit Analysis of College
Buffett is an investor, so he looks at college as an investment. As with any investment, it’s important to understand the potential payoff. When talking about an investment in education, the ROI may not be clear.
In an interview with The Long-Term Investor, Buffett said: “I think that’s one of the silliest statistics that they publish — to say that a college education is worth X because people that go to college earn this much more than the ones that don’t. You’re talking about two different universes. To attribute the entire difference to the one variable that they went to college, as opposed to the difference between the people who want to go to college and have the ability to get into college. It’s a fraud.”
How Much More College Graduates Earn
The Social Security Administration says that male college graduates earn about $900,000 more over their lifetime than men without a degree. For women, the difference is less — about $630,000. To Buffett’s point, the SSA also calculates the difference after controlling for variables that influence earnings. This narrows the difference somewhat, to $655,000 for men and $450,000 for women.
That still sounds like a lot, but to get those extra earnings, you need to pony up for the cost of college now. Using the discounted present dollar value, the difference works out to $260,000 for men and $180,000 for women.
The Cost of College
The cost of college continues to rise and shows no signs of slowing any time soon. This makes it likely that many parents and prospective students may soon share Buffett’s skepticism.
The Education Data Initiative indicated that the cost of attendance, which includes tuition, fees, books, supplies and room and board in 2023 is:
$26,027 per year, or $104,108 over four years, for an in-state student at a public college or university who lives on campus.
$27,091 per year, or $108,364 over four years, for an out-of-state student living on campus at a public college or university.
$55,840 per year, or $223,360 over four years, for students living on campus at a private non-profit university.
Just 40% of students earn their bachelor’s degree in four years. Ninety-six percent earn it within six years, but they pay proportionally more.
The Cost of Borrowing for College
Since most families are not able to write a check for these huge tuition bills, many students have to borrow money in order to attend college. Much has been made recently of the amount and impact of student loan debt, and rightly so. To truly understand the cost of a college education, you must consider the cost to carry all that debt.
According to the Education Data Initiative, Americans have $1.766 trillion in student loan debt as of August 2023. The vast majority (93.1%) of this is federal loans, which have a total balance owed of $1.645 trillion. The average federal loan balance is $37,718. Add in private loans, and the average balance is estimated at $40,499.
To get a bachelor’s degree, the average student at a public university borrows $32,637. The average payment for student loan borrowers is estimated to be $503 per month, and it takes an average of 20 years to repay student loan debt. Over that time, the average borrower accrues $27,000 in interest.
College Isn’t Necessarily a Guarantee of Success
Buffett is not the only billionaire who thinks college may not be for everyone. Other wealthy Americans who didn’t finish college include Bill Gates, Steve Jobs, Mark Zuckerberg, Ted Turner and Larry Ellison.
The increasing cost of college and the ballooning burden of student debt indicate that Buffett may have a very good point. There are good reasons to go to college, but there are also good reasons not to. And there are alternatives — a two-year community college, for example, rather than a four-year school — or a trade school or training program, where high school graduates are trained in a specific skill or for a particular type of job. Perhaps if other CEOs like Buffett agree, fewer well-paying jobs will require a college degree, and fewer people will need to incur the costs associated with that four-year diploma.
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This article originally appeared on GOBankingRates.com: Warren Buffett ‘Doesn’t Think College Is For Everyone’ — Here’s Why
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