Share this article

print logo

Study shows college is a wise investment

I just sat through a talk given by a research officer for the Federal Reserve Bank of New York in which he shared results of his deep dive into census, education and labor statistics for the local chapter of the Financial Planning Association.

It was absolutely riveting.

I know, I can’t believe I just said that, either. Seriously, though, I’ve never been so captivated by charts and graphs. Jaison Abel outlined the details of his research with colleague Rich Deitz that tried to answer the suddenly burning question: Is a college education still a sound investment?

In the age of record-high student loan debt and daunting job scarcity, where you can find a depressing number of college graduates stuck working jobs that don’t require school, people want to know the real economic value of a bachelor’s degree.

So, is college still worth the money? Here’s what they found.

The rate of return on a college degree beats the stock market. Stocks average a 7 percent rate of return. Bonds average 3 percent. A bachelor’s degree averages a 15 percent return.

That’s the case even with “less valuable” majors such as liberal arts (9 to 12 percent), leisure and hospitality (9 to 11 percent) and education (7 to 9 percent).

Underemployed grads still earn more. College grads earn more money than high school grads, even in jobs that don’t require college.

College grads tend to earn more over their lifetimes. College grads earn an average of $2.9 million over their lifetimes, compared to a high school grad’s $1.8 million.

The wage gap is huge and widening. Abel thinks a college degree is more important than ever, not just because college grads earn more, but because those without degrees keep falling further behind.

In the 1970s, those with a high school diploma earned about 40 percent less than college grads. Today, they earn about 75 percent less. And the alternatives available to those without college degrees just keep getting worse.

It’s not as expensive as you think. Yes, average tuition costs have jumped from under $5,000 per year in 1970 to about $15,000 per year in 2013. But the average net tuition cost – the price students actually pay after scholarships, tax credits and other assistance – has only increased from a little over $2,000 per year to just over $6,000 per year.

Completion is critical. If you don’t finish college once you start, you’ll have all of the costs of an education (debt, lost time in the workforce) without any of the benefits (higher pay).

Finish on time. It’s become common for grads to take six years to finish a four-year degree. But taking that long can cut your rate of return nearly in half.

College grads break even faster than ever. It used to take college grads 20 years to recoup the money they spent on school. Today, it’s more like 10 years.

Your major means a lot. OK, no big surprise here. Fields that require cognitive skills and decision making pay more. Engineering majors make a 21 percent return on investment; math and computers and health majors make 18 percent.

But STEM-type jobs don’t just pay more; there are a lot more of them. Qualified tech graduates, for example, have the world at their feet. Choose wisely.

College doesn’t pay off for everyone. About 25 percent of college graduates don’t earn higher wages than those with just a high school diploma.

email: schristmann@buffnews.com

People want to know the real economic value of a bachelor’s degree.