A College Education Still Pays For Itself, Fed Economists Say

09/05/2014

Even with tuition bills on the rise, a four-year U.S. college education still pays for itself in the form of higher wages in the decades to come, according to a new research paper from the Federal Reserve Bank of San Francisco.

“Although there are stories of people who skipped college and achieved financial success, for most Americans the path to higher future earnings involves a four-year college degree. We show that the value of a college degree remains high, and the average college graduate can recover the costs of attending in less than 20 years,” wrote San Francisco Fed economists Mary C. Daly and Leila Bengali. “Once the investment is paid for, it continues to pay dividends through the rest of the worker’s life, leaving college graduates with substantially higher lifetime earnings than their peers with a high school degree.”

Ms. Daly and Ms. Bengali analyzed earnings data for U.S. workers. In 2011, college graduates made an average of roughly $20,050 more a year than high-school graduates. “The premium is much smaller, although not zero, for workers with some college but no four-year degree,” they wrote.

That premium, they noted, must be weighed against the cost of attending college: four years of tuition, plus missed earnings from four years out of the workforce following high school. A calculator on the San Francisco Fed’s website allows people to figure out how long it would take to break even –that is, how many years it would take a college graduate to close the accumulated-earnings gap with a high-school graduate when accounting for the cost of college tuition.

Annual tuition of about $21,200, Ms. Daly and Ms. Bengali concluded, would allow a college graduate to break even 20 years after graduating from high school. “This amount may seem low compared to the astronomical costs for a year at some prestigious institutions; however, about 90% of students at public four-year colleges and about 20% of students at private nonprofit four-year colleges faced lower annual inflation-adjusted published tuition and fees in 2013–14,” they noted. “Although some colleges cost more, there is no definitive evidence that they produce far superior results for all students.”

Plus, they noted, “allowing more time to regain the costs will increase our calculated tuition ceiling.” Their verdict: “earning a degree clearly remains a good investment for most young people.”

Fonte: blogs.wsj.com/economics

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