Studying the Financial Return on a College Education

Does the Cost of College Outweigh the Value Received?

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College costs are rising! Student loan debt is too high! Headlines scream out as nervous parents and hopeful students complete the Free Application for Federal Student Aid (FAFSA) this January in hopes of not becoming part of those media stories. Financial aid and scholarships can go a long way toward easing the costs of a college education, but many families still wonder if the value received will outweigh the costs involved.

 

Inside Higher Ed just reported on a Federal Reserve Bank of New study which should provide a definitive answer to these concerns once and for all. In the report, “Do the Benefits of College Still Outweigh the Costs?” economists Jaison R. Abel and Richard Deitz conclude that a college education does indeed remain a good investment. This conclusion comes in spite of reports of rising tuition and falling wage levels. They look at an incredible database of information from four decades to make their assessment. Other conclusions based on this intense data study include:

 

  • High rate of return: Both an associate’s or bachelor’s degree will provide a return of approximately 7-15 percent, regardless of the major pursued in college. With interest rates continuing at historic lows and unprecedented swings in the investment markets, it is hard to imagine an investment with a better return.
  • The legend of a life condemned to minimum wage just doesn’t hold water: Many stories of college graduates getting stuck in minimum wage jobs started to creep up during the last economic downturn. As businesses closed or down-sized, more jobs on the lower rungs of the employment ladder were being taken by more experienced professionals who suddenly found themselves in search of a job. Some recent college grads with little to no experience did end up taking minimum wage jobs - for a certain period of time. As the economy has strengthened, the job picture has opened up again and more alumni are finding jobs in their chosen career field that pay quite well.
  • Lifetime benefits add up: The study showed that college-educated workers earn more than their high school counterparts, even in jobs that don’t require an advanced degree. Over a lifetime of working, the benefits of a college education far outpace those that earned only a high school diploma - by over a million dollars!
  • Many higher-paying jobs require an advanced education: Most of today’s higher-paying jobs cannot be performed with the benefit of an advanced education. Careers in the information management, software development, finance, legal and healthcare fields all require knowledge that can be obtained only in college.
  • They’re working their way up the ladder: Even if college graduates are underemployed in a job that does not meet their capabilities, they are still gaining additional skills which will help them move up the ladder more quickly than their less-educated counterparts. Eventually they arrive at a position which does indeed require a college degree.

 

The most sobering news is that the wage gap is growing wider and wider between levels of academic achievement. In order to qualify for any type of meaningful employment in the future, an advanced education will be a given. The good news is that financial aid and scholarships are available to help lessen the impact of obtaining that degree. Students need not attend the most expensive college on their wish list to obtain a viable education. Minimize college costs, graduate on time, and keep student loan debt to a minimum, and you’ll be ahead of even your fellow grads.