Media stories about the rising cost of college education and growing student debt, combined with the lingering economic effects of the recession, have led many to question whether it still makes financial sense to attend college.
Despite the often negative slant given by the media, the empirical data suggest that the answer is still a resounding yes. According to the latest research from the Federal Reserve Bank of San Francisco. Fed researchers analyzed U.S. labor data and found that, on average, people with a bachelor’s degree earn over $830,000 more over the course of their working lives than people with only high school diplomas, even when the cost of attending college is taken into account.
The recession appears to have had little effect on this “college earnings premium.” Researchers grouped workers into cohorts by decade and compared the earnings premiums of those graduating in the 1950s-1960s, the 1970s-80s, and the 1990s-2000s. The earnings premium has fluctuated. Its lowest point was actually in the 1980s when college graduates earned about 43% more on average than those with only a high school diploma. However, in 2011, the latest year available, the college earnings premium has skyrocketed: college graduates, on average, earn about 61% more than high school graduates. “There is little evidence to suggest that the value of a college degree has declined over time, and it has even risen somewhat for graduates five to ten years out of school,“ concluded the Fed the researchers in their May 2014 report.
But, what about rising college costs? Does the cost of a college degree negate the value of the college graduate earnings premium? Again, the researchers found that popular perception simply wasn’t supported by the hard evidence.
Taking inflation and lost earnings while in college into account, the researchers compared the average earnings of a college graduate, which increase over time, to average college tuition costs to calculate break-even scenarios. They found that the average college graduate recoups the cost of attending college in their extra earnings in less than 20 years. The researchers noted that once the break-even point is reached, college graduates continue to enjoy the benefits of higher earnings for the rest of their working years.
The evidence is clear: a college education is a sound financial investment that pays lifetime dividends. According to the Fed report, “The value of a college degree remains high. Although other individual factors might affect the net value of a college degree, earning a degree clearly remains a good investment for young people.”
Click here to read the full Federal Reserve Bank of San Francisco’s study and access the accompanying break-even calculator.