09/15/2013 11:45 EDT | Updated 11/15/2013 05:12 EST

Is Going to University a Waste of Money?

If you graduate with massive debt and no job, it's easy to make the case that college or university was not a wise investment.

Statistics Canada just released a study indicating that undergraduate students in Canada paid $6,589 in tuition and compulsory fees for the 2013/2014 school year, up 3.6 per cent from $6,362 last year.

When you add in the cost of books and living expenses a college or university education can easily cost $10,000 to $15,000 per year, or more. A four year program could cost $50,000 or more.

That's a lot of money, and that doesn't include the "opportunity cost" of going to school.

If you graduate from high school and start working immediately, even earning just $10 per hour, you have earnings of $20,000 per year. After four years you will have earned $80,000, as compared to the student who did not work full time while in school, and paid $50,000 for their education. That's a $130,000 advantage for the person who didn't pursue post-secondary education.

And yes, I realize that the university graduate will hopefully earn more in the future than the high school graduate, so over time they should be able to make up that difference, but that assumes there will be jobs for them in the future. In our sluggish economy older workers need to keep working, so there may be fewer jobs available for recent graduates in the future.

But what if you didn't have the cash (or your parent's cash) to fund your education? What if you had to get student loans to go to school? That's where the numbers get scary.

According to the Bank of Montreal the average student expects to graduate with over $26,000 in debt, and they expect it will take almost six and a half years to pay it off.

The sad reality is that some students are unable to service their student loan debt. In our Joe Debtor survey earlier this year we discovered that 13 per cent of people filing bankruptcy or a consumer proposal have a student loan, and the average student loan at the time of filing was over $13,000 (in addition to $37,500 in other debts). That's a lot of debt to carry after getting an education.

Remember, under current bankruptcy rules a student loan is only discharged in a bankruptcy if you have ceased to be a student for over seven years, so the only people going bankrupt to eliminate student loans have been out of school for a long time.

If I was trying to decide whether or not to go to college or university, I would not blindly assume it's a good idea. Instead, I would ask myself three questions:

  1. Do I have a good chance of finding a good job when I graduate?
  2. If I get a student loan, will I be able to earn enough to pay it off reasonably quickly?
  3. Should I work for a year or two first, or go to school part time, to reduce the amount I need to borrow for my education?

Is college or university a waste of money? For some people it is, for others it is a great investment. The point is that you should crunch the numbers and carefully consider your decision up front, so many years from now you are not looking back wondering how you will ever pay off that massive student loan.

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