- A New York Fed study suggests that a college degree still offers a solid financial return, even with rising tuition costs.
- The study found that the average worker with a college degree earns about $US33,000 more than the average high school graduate.
- The rate of return on a degree has dropped a bit in recent years, but still remains very high.
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College tuition is skyrocketing, but the benefits of a degree are still big enough that it is still generally worth it.
A new report from the New York Fed’s Liberty Street Economics blog took a look at the returns from a college education. Even though college has gotten more expensive, the study found that the financial benefits of earning a degree still make higher education a good investment.
The main economic advantage of a college degree, of course, is higher wages. The NY Fed researchers noted that, in 2018, the average worker with a bachelor’s degree earned about $US78,000, while the average worker with a high school diploma earned just $US45,000, making for a difference of about $US33,000.
The report also pointed out that this college wage premium has remained fairly stable since the turn of the century. The researchers wrote, “The college wage premium generally increased during the 1980s and 1990s, rising from less than $US20,000 to around $US30,000, before settling into a relatively narrow range of $US30,000 to $US35,000 after 2000.”
The college premium is geographically widespread across the US. Using individual-level Census data from the Minnesota Population Center’s Integrated Public Use Microdata Series program, we found that, in every state and DC, the typical resident with at least a bachelor’s degree earned more than the typical non-college grad.
The New York Fed went on to calculate the rate of return on a college degree, comparing that long-term premium in wages down the road to the direct costs of attending college and the opportunity cost of lost wages from delaying entry into the workforce for the four years needed to earn a bachelor’s degree.
The following chart from the report shows that calculation. Even though the rate of return on a college degree has fallen a bit from its height in the early 2000s, it remains high. The report’s authors wrote, “at nearly 14 per cent, the return to college easily exceeds various investment benchmarks, such as the long-term return on stocks (7 per cent) or bonds (3 per cent).”
The report pointed out that the lower rate of return is largely due to increased costs of college. “While the college wage premium has held steady-or even increased slightly-in recent years, costs have been increasing due to rising opportunity costs and a steady rise in tuition,” the authors wrote.
The report includes some caveats to the analysis. While the rate of return for the typical college graduate is strong, it’s quite possible that college isn’t a good investment for all students. The authors referred to earlier work of theirs that suggested that getting a degree could be a net negative financial proposition for the bottom quarter of earners.
A recent INSIDER/Morning Consult survey shows that many millennials, particularly those with outstanding student debt, think that college wasn’t worth it. According to that survey, 64% of millennial grads who had finished paying off their student loans said earning their degree was worth it, while just 48% of those still paying off their loans agreed.
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