In a recession, is college worth it? Fear of debt changes plans

— -- Darla Horn, 26, acknowledges she didn't give much thought to the cost of college when she enrolled at State University of New York in Purchase.

"My plans were to get out of Texas, and college became incidental," says Horn, who grew up in Nacogdoches, a city of about 32,000 near the Louisiana border. Because she didn't qualify for financial aid, she took out student loans, graduating in 2005 with a double major in journalism and anthropology and more than $80,000 in debt.

Her loan payments were manageable until this year, when she lost her job as an information technology recruiter earning about $100,000 a year. Currently self-employed, she's behind on her loan payments. In April, she organized an exhibition in Long Island that featured artwork by graduates who are trying to raise money to pay their student loans.

"To this day, I have yet to see the complete value of my education," Horn says.

For years, an article of faith in this country has been that college is the gateway to a better life. So deeply held is this belief that many students, such as Horn, borrow tens of thousands of dollars to attend prestigious public or private universities. But as the worst recession since World War II trudges into its 21st month, many graduates are discovering that the college payoff could be a long time coming — if it comes at all.

New and prospective students, meanwhile, are abandoning their "dream schools" in favor of more affordable options, forcing many colleges to work harder to justify their price of admission.

In July, the unemployment rate for college graduates was 4.7%, up from 2.8% a year earlier, according to the Bureau of Labor Statistics. That's still considerably lower than the 9.4% rate for workers with only a high school diploma.

But unlike out-of-work high school graduates, many unemployed college grads face the additional burden of student loan payments. Two-thirds of bachelor's degree recipients last year graduated with an average debt of about $23,000, according to Finaid.org, a financial aid website.

Total debt for borrowers with graduate or professional degrees ranges from $30,000 to $120,000, Finaid.org says.

New graduates face an even more unforgiving job market. Employers expect to hire 22% fewer graduates from the class of 2009 than they hired from the class of 2008, according to the National Association of Colleges and Employers.

The economic downturn is affecting the choices that students and their parents make:

•Community college enrollment is soaring. More than 90% of community college presidents said enrollment was up in January from the previous year, and 86% reported an increase in full-time students, according to a survey by the Campus Computing Project, which studies the role of information technology in higher education.

Alyssa Griffin, 19, of Columbus, Ohio, would like to obtain a bachelor's degree in interactive media from Capital University, a private school in Bexley, Ohio. But to save money, she plans to spend her freshman and sophomore years at Columbus State Community College and live at home.

This strategy means Griffin will miss out on a traditional four-year college experience, but it will significantly reduce the cost of her college education — by more than $40,000. Tuition at Capital runs more than $27,000 a year, vs. about $6,000 at Columbus State.

"I have no issues with starting at Columbus State and then going on to Capital," Griffin says.

Community colleges have long provided a way for adults to learn new job skills, often by attending part time. But these days, they're seeing a big increase in students such as Griffin, says Will Kopp, vice president for institutional advancement at Columbus State.

The median age of new students at Columbus State is 19, he says. By attending their first two years at a community college, Kopp says, "they're paying maybe a third of the tuition at state universities; maybe a tenth what they'd pay at a private school."

•Students who attend traditional four-year colleges are paying more attention to costs. More than two-thirds of students who applied for college this spring said the economic downturn affected their choice of colleges, according to a survey by the Princeton Review.

The survey also found "a great concern around financial aid," with 85% stating that they wouldn't be able to pay for college without it, says Robert Franek, vice president, publishing, for the Princeton Review.

Similarly, 70% of high schools reported an increase in the number of students who abandoned their "dream schools" in favor of more affordable options during the 2008-09 academic year, according to the National Association for College Admission Counseling.

More than 65% reported an increase in the number of students planning to apply to a state instead of a private school.

Nearly one-third of private colleges expect freshman enrollment to decline in the 2009-10 academic year, according to a survey by the National Association of Independent Colleges and Universities (NAICU).

Overall undergraduate enrollment in private colleges is expected to increase by 0.2%, the association said. In the past 10 years, enrollment at both public and private schools has increased by an average of 1% to 2% a year.

Private colleges are well aware of the financial difficulties facing many families and have increased student aid by an average of 9%, says Tony Pals, spokesman for the NAICU.

"Nearly nine out of 10 students at private colleges pay less than the list price," Pals says. "You also need to consider that students at private colleges are twice as likely to graduate in four years than their peers at public institutions."

A long-term investment?

Few would argue that college is a bad investment, but the economic downturn could diminish the value of that investment.

Those who graduate during a recession tend to start at smaller and lower-paying companies or firms, forcing them to change jobs more frequently than those who graduate during better times, according to a 2006 study by the National Bureau of Economic Research.

The study found that college students who graduate during a recession suffer an average 9% reduction in annual earnings initially, and that the discrepancies don't disappear until about 10 years after graduation.

Even before the recession, the value of a college investment was inflated, says Marc Scheer, author of No Sucker Left Behind: Avoiding the Great College Rip-Off.

Oft-quoted reports that college graduates earn $1 million more over their lifetimes than workers with high school diplomas help encourage students to take out unmanageable levels of debt, Scheer says.

"No debt amount seems steep compared to a $1 million payoff," he says.

'Less likely to struggle'

The College Board, a non-profit association of more than 5,400 colleges and universities, estimates the lifetime "earnings premium" for a college graduate is $450,000 in today's dollars, or $570,000 for workers with graduate degrees.

"That's a much more accurate" estimate than the $1 million figure, says Sandy Baum, senior policy analyst for the College Board.

But Baum argues that a college education is more valuable during a recession, not less.

In a downturn, she says, "Most of the stories that say maybe it (college degree) isn't worth it any more find some unemployed college graduate," she says. "But unemployment among college graduates is still half that of high school graduates. A college education payoff is at least as high as it was before the recession. You're so much less likely to struggle if you have an education."

Laurence Kotlikoff, an economist at Boston University and developer of ESPlanner financial software, says his analysis of median earnings shows that college graduates nearly always fare better than those with just a high school diploma. But the amount students borrow can significantly reduce that advantage, he says.

Brenda Jaeggi, 26, of Galveston, graduated last May from Texas A&M University with a degree in maritime studies and more than $39,000 in student loans. About $22,000 of her loans are private loans, which are costlier and carry less flexible repayment terms than federal student loans.

Now, Jaeggi is struggling to make her $400 monthly payments. She's considering moving to a less-expensive apartment, although that likely will mean living in a neighborhood that isn't as safe as the one she's in now.

"I don't have any regrets about going to Texas A&M," Jaeggi says. "I'm proud to be part of that school and that culture. I very much regret how easy it was to get a student loan. Now, I'm stuck in this really bad pickle."

Graduates of elite schools contend that attending such a school gives them an edge in a tough job market.

Michelle Talbert, 39, has more than $90,000 in student loans from her undergraduate studies at Cornell University and law school at the University of Pennsylvania.

She recently was laid off by a law firm in Fairfax, Va., where she was a corporate associate specializing in mergers and acquisitions. Talbert says the connections she made in college helped her obtain contract work. Her current salary varies from month to month.

"I'm really enthusiastic about not letting circumstances that could appear to be a hurdle stop you from achieving a dream," says Talbert, a mother of two who got her undergraduate degree when she was 30. "For me, my dream was to go to college and go to law school."

College financial aid specialists say students should take a hard look at average salaries in their chosen profession before taking out student loans.

"If you think you want to be a preschool teacher, you should be more hesitant about borrowing than if you think you're going to be an engineer," Baum says.

Darla Horn says that if she had to do it all over, she would have taken a year off to figure out what she wanted to do with her life before attending college.

"Some kids know what they want — they want to go to medical school, or become doctors or lawyers," she says.

"But for someone that doesn't know what direction they want to head in, I would say, take a break, get to know yourself a little more, before you spend thousands of dollars on an education."

Contributing: Michelle Walbaum