Trade school, not 4-year college, is a better bet to solve the US income gap, researchers say
Ahh Mondays… another work week, but also another Money in the Media Monday! This week, I wanted to continue the conversations from last week on student loans with this article from CNBC, “Trade school, not 4-year college, is a better bet to solve the US income gap, researchers say.” This article takes a look at the bigger picture behind promoting trade school programs. Then we’ll go from the big picture back to the smaller picture of personal finance.
The “College Premium”
With only a 60% graduation rate for those who attend a four year college, it may be a time to reevaluate the thought that college is the way to go. The assumption has been that going to college would automatically lead to a higher average income. Not only is this not necessarily true, but college graduates may even lose money if they are paying off student loans for another decade (or two) after they’ve graduated.
Manufacturing and the Trades
In the US, it is no secret that the manufacturing has declined over the past 20 years or so. What is not as well known is that the size of the manufacturing sector may be related to the availability of skilled tradesmen. Using Germany as an example, the increased vocational training that is available has directly correlated to a higher manufacturing as a percentage of their overall GDP. Meanwhile, they have far fewer high school (secondary education) graduates attending a four year college or university than the US.
The differences in Germany and the US’s education systems favor different results. Germany’s results in more vocationally trained skilled labor to add to their manufacturing sector, while the US has far too few skilled laborers as many seek a four year degree. At the end of that day, that four year degree may or may not give them a leg up on their income after graduation.
Focus on the Individual
Seeing how the educational system can influence the economy is an interesting way to take a look at this issue, but I’m much more interested in the personal finance aspect of this. To exemplify, let’s take a look at the incomes/educational expenses for someone who trains to become a plumber versus the average college student who earns a 4 year degree.
According to Explore The Trades.org, there are 4 main ways to get into the trade:
Looking at this, I can see that using an Apprenticeship is the most cost effective way to get into this field. Not only will there only be a $1,000 cost to enter the program, but they will earn approximately a $15.5/hr during the length of their apprenticeship, or ~$30,000/yr. Using those figures, let’s compare how each path would fare 4 years later:
As shown above, working in a trade would bring in $120,000 over the 4 years of training. After which, the apprentice would need to pass an exam to become a journeyman and could then earn anywhere from $17-$43/hr or $33,000- $83,000/yr.
This is compared to the average college student, who would earn $51,800/yr upon earning a job after graduation. However, over half of their first year’s income will have to go towards paying back their student loans. The average payback period of student loans for those between $20,000-$40,000 is 20 years. Assuming that ‘average college student’ is indeed average, they would pay a total of $47,371! That is over $19,000 just in interest.
Looking at these numbers at the end of four years, it’s hard to argue with how tempting a career in the trades looks.
When discussing salary statistics, most only look at those with a 4 year degree ($51,800) versus those with only a high school diploma ($32,000). From this data alone, the conclusion can be drawn that a college education must be the right path, but this ignores another path entirely. Working in the trades can start at about $30,000 as an apprentice and grow all the way up to $130,000 with a master certification.
Pushing high school students solely towards a college education limits the possibilities for someone who may not really be interested in that type of career. Considering the trades opens up new opportunities for success to those who otherwise would not enjoy or possibly fail out of a 4 year college program. As for the big picture, it could help close the US income gap and help bring manufacturing levels up.
Two paths diverge in the woods, but what if there’s a third path?
Let me know your thoughts on vocational education in the comments below!