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Remote College Is Still More Valuable Than a Gap Year

Here is what you need to know about a ‘gap year’ and the ‘cost’ of this decision.

Remote College Is Still More Valuable Than a Gap Year
Students walk on the University of Virginia campus in Charlottesville, U.S. (Photographer: Andrew Harrer/Bloomberg)

With Covid shuttering many college campuses this fall, as many as one out of five college kids may be considering taking a gap year instead of taking online classes from their mother’s couch. A typical rationale: “I’d rather get a Door Dash job than miss out on my college experience.” It could prove an expensive choice.

Let’s break down the cost of this decision. The deadline is the financial D date — the day in early September that most colleges will let you defer for a year and get your tuition back. To some students and parents, it sounds like a great idea to take a year off, delay some $40,000 in expenses, and just wait for the frat parties and football games to restart.

But that’s not the right way to consider the net present value of a college education. Taking a year off can cost more than $49,000 over a 20- to 40-year career. (I’ll explain that number below.) The bottom line is that for most students, the benefits of graduating and working as soon as possible outweigh any benefits of delaying the workforce.

One reason is what economists call a “cohort effect.” If 20% of seniors, about 1.9 million, take a gap year now, the graduating class in 2022 will be 20% larger. The stark fact is that being in a larger cohort lowers the chances of getting a job right out of college. A larger cohort causes lower wages and higher unemployment rates. For example, Boomers would have had 5-8% higher wages during their lifetimes if their cohort had been a normal size.  

Some students, maybe along with their parents, want to wait for a coronavirus vaccine to be available so they can get the full on-campus experience. As a college professor, I find the high priority given to drinking, sports and nightlife slightly horrifying. One ranking, for example, counts a school’s access to bars as twice as important as the percent of undergraduates who graduate in six years and three times as important as a school’s safety grade. The number of national sports championships is weighted more heavily than the retention rate of full-time students.

Parents and students waiting for the other side of Covid to go to a football game in November in some midwestern city should know the cost in lost lifetime earnings.

A student who defers for a year isn’t saving money. They will eventually have to pay the $40,000 in tuition, and in the meantime still must pay interest on any student loans. All they’re doing is delaying the point at which they can start earning the higher salary a college-graduate commands. Think of building a skyscraper: If you borrow money to build a tower as fast as possible and fill it with tenants, it could make the difference between turning a profit or going under. The fewer months a student spends out of the workforce, the more valuable their college degree becomes.

Let’s look at the math. Treating a college degree as a long-term investment, we can calculate its net present value by subtracting the total cost (including foregone earnings while in school) from the expected earnings of the graduate. The median net present value for a bachelor’s degree is $723,000 40 years after enrollment and $107,000 10 years after enrollment, according to the invaluable Georgetown University Center on Education and the Workforce.

It matters when those earnings begin to accrue. Consider a college student expecting to earn $55,000 per year (in today’s dollars). Assuming school costs $40,000 per year, the net present value of that education in 40 years is over $1.4 million (discounted by 2%). If that person takes 2020-2021 off, the value falls by $49,000 because of an expected increase in unemployment the year of graduation (there’s that cohort effect) and the lost year of earnings caused by delaying working for a year. And I am not even taking into account the people who have student loans! The cost of a gap year is even higher for them.

I’ve heard some seniors say they want to take a gap year now to avoid looking for work during a recession, but this is also misguided. First, we can’t time recessions, so we can’t be sure when this will end. All we can say is that they rarely last more than 20 months. Second, most people do get jobs in recessions. The unemployment rate right now is 10.2 %, which is astronomically high, but still means 90% of people wanting work have a job.

And if $49,000 sounds to you like a drop in the bucket for a year of valuable experience, remember that the better "gap year" options — those that add to skills and knowledge — are probably not available right now. Thanks to the pandemic, you probably won't be teaching English in Peru while learning Quechua. If you earn, say, $9,000 from a gig with Door Dash, you’re still about $40,000 in the red.

Taking a gap year right now doesn’t make sense financially. It’s best to graduate as fast as you can and look for work, rather than letting time pass and debt pile up. Add up the full cost of a gap year before rejecting a year of online college classes. Staying out of the classroom matters for public health — and staying in school matters for your financial health.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Teresa Ghilarducci is the Schwartz Professor of Economics at the New School for Social Research. She's the co-author of "Rescuing Retirement" and a member of the board of directors of the Economic Policy Institute.

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