The value of a college degree has more than tripled in 30 years

Posted: September 12, 2014 at 5:10 pm

By Ángel Cabrera and Kirk Heffelmire

Don’t let the critics fool you: the economic value of a college degree is not declining but growing–even as tuition continues to rise.

The higher-ed doomsday genre is alive and well (the most recent example, Academically Adrift).  And yet, while questions persist about the value of a college experience, employer demand for what colleges and universities produce is on the rise.  It goes without saying that employment outcomes do not capture all the value a college degree is intended to deliver.  But they are an important element.  And since tuition is expressed in dollar terms, we owe it to everyone to show that a college degree is a good investment in economic terms.

Recent research from economists at the New York Federal Reserve add to the overwhelming body of data showing that a bachelor’s degree is a pretty safe and wise investment. In fact, the return on the investment on a bachelor’s degree is at a 30-year high.  The net preset value of a bachelor’s degree is more than $270,000 vs. $80,000 in 1980 (expressed in 2013 dollars).  These figures are calculated by considering tuition expenses, the wages foregone by studying instead of working, and the income premium earned across a working career with a college degree as opposed to only a high school diploma, all discounted to today’s value. (By the way, the researchers note that the value has gone up despite the increases in tuition, not so much because college graduates are doing better but because those without a college degree are doing worse).

Like any investment, higher ed too carries its risks.  Perhaps admissions brochures should include clear disclaimers detailing the major factors that can increase risk and reduce return.

For example, the value of a degree declines substantially the longer a student stays in school beyond four years.  In addition to the obvious additional tuition payments and foregone wages, the delay in gaining early career experience puts you on a disadvantaged wage trajectory over the duration of your working life.  Researchers have found that every additional year you stay in college beyond the customary four will cost you $65,000 in net present value.  Graduate in six or seven years and the value of your investment will erode very fast.

These are not certain outcomes but statistical estimates.  The actual value of a degree for each individual will vary.  For example, the the cited research estimates that up to 25% of college graduates may not see a monetary return on their investment whatsoever.  A bachelor’s degree is not a zero-risk investment. It is entirely possible for a high school graduate to out earn a college graduate, even if the odds are against them.

An economic recession like the one we just experienced hurts everyone’s employment, college graduate or not. However, the researchers illustrate that, even then, the statistical value of a degree is undisputed. The unemployment rate for recent college graduates has fallen since the recession and is less than half the rate for comparable workers without a degree. There is evidence that many college graduates are underemployed, meaning they have jobs that may not require their full qualifications. However, among the underemployed college graduates most have found relatively high-paying jobs.

So here’s our advice.  If you have the potential and can find the way to finance it, research your options, look at the data, choose a solid college with good outcomes, go to college and graduate as soon as possible. The returns on this investment are by no means guaranteed.  But this will be one of the surest, safest investments you will make in your lifetime.

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Write to Ángel Cabrera at president@gmu.edu

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