College starts today for students across the country.
With tuition costs surging, we can’t help but ask, “What are they thinking?”
In a new note, the New York Fed’s Jaison R. Abel and Richard Deitz write that, looked at one way, these young people are making a sound investment as it now takes fewer years than ever for graduates to recoup their investment.
While you used to have to work nearly 25 years to earn back what you’d fronted for your degree, only about 10 years on average are now required.
“Despite the challenges facing today’s college graduates, the value of a college degree has remained near its all-time high, while the time required to recoup the costs of the degree has remained near its all-time low,” they write.
However, that 10-year time-frame has not really budged since the late ’90s.
Similarly, the value of a college degree has not increased since 2000, and has actually been decreasing of late.
“We estimate that the value of a college degree fell from about $US120,000 in the early 1970s to about $US80,000 in the early 1980s, before more than tripling to nearly $US300,000 by the late 1990s, where it has remained, more or less, ever since,” they write.
That value of college has stayed near all-time highs despite rising tuition costs and falling wages for graduates actually has more to do with plummeting wages among high school graduates.
In other words, the opportunity cost of not going to school are climbing.
We’ve written about the debate over the value of a college degree before, and most economists remain adamant that in nearly every scenario, obtaining a college degree (as opposed to merely taking just some college) is worth the investment.
But Abel and Deitz recognise that it still remains difficult to argue one way or the other.
“…It’s possible that some part of what we estimate as the value of a college degree isn’t driven by the skills an individual acquires while in college: people who earn a college degree may simply differ in their innate skills and abilities from those who don’t obtain a degree,” they write. “Maybe some college graduates would have earned higher wages even if they had never gone to college. Separating out these two effects in research studies is extremely difficult.”
We should keep our eyes on this space as the pair say they have further posts on this subject in the pipe, including one that shows that based on the distribution of wages for college graduates, college actually does not appear to have paid off for a sizable fraction of those who made the investment.