One could be excused for thinking the value of a college degree is in a downward spiral. With overall student-loan debt topping $1-trillion and tuition racing upward, to college graduates facing high levels of underemployment and stagnating wages, it might appear college simply isn’t worth it.
However, a study released on Tuesday by two researchers with the Federal Reserve Bank of New York concludes the opposite is true: The value of a bachelor’s degree is near an all-time high.
The researchers, Jaison R. Abel and Richard Deitz, found that despite some “alarming trends,” a bachelor’s degree for a 2013 graduate was worth $272,693, on average, and when adjusted for inflation, the value of a degree has hovered around $300,000 for more than a decade.
Why has the value of a degree remained so high while wages stagnated and tuition spiked?
“The primary reason is that the wages of high-school graduates have been falling, reducing the opportunity costs of going to school and keeping the college wage premium near its all-time high,” Mr. Abel and Mr. Deitz write.
In other words, the wages students forgo while attending colleges—the “opportunity cost"—are lower than they used to be, and the average wages for those who don’t have a college degree keeps falling. Even though the wages for college graduates are not increasing, the gap between their pay and earnings of those with only a high-school diploma has increased, keeping the value of a college degree from falling.
College Is Actually Getting Cheaper
You may have seen a Wall Street Journal write-up this week that said a college degree pays off faster than it used to, or a Huffington Post piece that focused on the value of a college degree. But what both of those articles failed to note about Mr. Abel and Mr. Deitz’s research is their finding that the actual cost of college is really going down.
While tuition and fees keep going up, the researchers say that once other considerations are factored in, the cost of college is actually dropping. That’s because the opportunity cost of college makes up about 80 percent of the total cost. In 2001, the year the value of a college degree hit its peak, the researchers found that college cost graduates $125,356 over four years (adjusted for inflation). Of that, $105,722 was the amount a student could have earned over those four years, and $19,633 was the net tuition. By 2013, tuition had gone up to $26,188, but the “lost wages” had dropped, to $95,827. That means the overall average cost of attending college last year was $122,015, less than in 2001.
“People are familiar with the story of rising tuition cost and out-of-pocket expenses,” Mr. Deitz said in a phone interview. But people forget that they are also giving up the wages they could be earning during that time. “Just because you do not see something does not mean it’s not important,” Mr. Deitz said.
It turns out, the opportunity cost of attending college dropped significantly through the 1970s and 1980s, and leveled off during the 1990s. Researchers found the drop during that period helped to reduce the amount of time it takes to recoup the cost of a degree. As a result, 2013 graduates will need 10 years, on average, to recoup the cost of their education, compared with the 23 years it took a graduate in 1980.
The loss of jobs that pay well but do not require a college education has helped to pull wages down for those with only a high-school diploma. (A quick look at U.S. Bureau of Labor Statistics data shows that loss has been particularly heavy in the manufacturing sector, where one of every three manufacturing jobs that were available in 2000 no longer exist.) Perversely, the trend makes a college degree more valuable, even as the economic outlook for college graduates hasn’t improved as much as many graduates—and their parents—would like.
