Benefits of College Still Outweigh Costs, Fed Study Says Declining wages of those with just a high school diploma help boost the wage premium of higher education. By Katherine Peralta June 24, 2014 | 10:24 a.m. EDT usnews/news/articles/2014/06/24/benefits-of-college-still-outweigh-costs-fed-study-says?int=995508 Even in the face of rising student loan delinquency rates, increasing tuition costs and still-tough employment prospects for recent college graduates, the benefits of a degree outweigh the cost, according to a New York Federal Reserve study released Tuesday. The earnings of a college degree – bachelor’s or associate – have fluctuated over time but have had average returns of about 15 percent over the past 10 years, the report showed. This is in large part because wages for those without a college degree have steadily declined, which boosts the college wage premium while worsening the prospects of the less educated, according to the report. “Despite the recent struggles of college graduates, investing in a college degree may be more important than ever before because those who fail to do so are falling further and further behind,” the report read. The “falling behind” can be felt in joblessness and wage disparity by level of education. The unemployment rate for those at least 25 years old with just a high school degree was 6.5 percent in May, compared with the national rate of 6.3 percent, according to the Bureau of Labor Statistics. On the other hand, the jobless rate for Americans that age with a college degree is less than half that, or 3.2 percent. Other recent data suggest that the education-wage gap has grown with time. Americans 25 to 32 with a college degree made an average of $17,500 more annually than their peers with just a high school degree in 2012, whereas in 1979 they made just $9,690 more, a February Pew Research Center report showed. Jaison Abel and Richard Deitz, co-authors of the Fed report, weighed the benefits and total costs of investing in college to determine that wage premium. They found that the “sticker price,” or the published tuition and fees for attending college, has more than tripled for a bachelor’s degree, from about $4,600 per year in the 1970s to nearly $15,000 a year in 2013. For an associate degree, the published costs rose from about $1,100 a year in the 1970s to more than $3,000 a year in 2013. Though the price of education has risen, the out-of-pocket amount students pay is lower than the “sticker price,” given the amount of aid students receive that they don’t have to pay back, such as in grants and tax benefits, the report showed. Even though bachelors degree holders enter the workforce at a later age and forgo “opportunity costs,” -- or money they could have made during those years instead of being in school -- over the course of their lifetimes, they made an average of over $1 million more than someone with just a high school degree, and those with associate degrees made $325,000 more than those with high school diplomas. College degrees are also stepping stones for postgraduate degrees, which offer even bigger payoffs, Abel and Deitz wrote. One other unquantifiable benefit, the wrote, is that college instills in students “aptitudes, skills and other characteristics that make them different from those who do not go on to college.” For those who do opt to take out loans for education, aggregate student loan debt exceeded $1 trillion at the end of 2013, and more than 10 percent of balances were 90 days delinquent, according to a research note from Lindsey Piegza, chief economist at Sterne, Agee & Leach Inc. in Chicago. This compares with a 3.3 percent delinquency rate for auto loans and 3.7 percent for mortgages. [ALSO: The Top Industries for New College Graduates] However, Americans who took on student debt for higher education between 1992 and 2010 saw their incomes increase enough so that 2.4 years of that higher income would cover the increased student debt incurred, according to another report released Tuesday from the Bookings Institution. Lastly, the New York Federal Reserve report found that college major does, unsurprisingly, make a difference in terms of potential wages. Majors that require technical training, such as engineering and mathematics, have returns of 21 percent and 18 percent, respectively, while those majoring in the liberal arts fields such as leisure and hospitality and education all have below-average returns of 11 percent and 9 percent, respectively. Piegza said when it comes to publicly subsidizing education, the federal government must take major into account. “From a political standpoint you can’t necessarily say, ‘we have to more evenly divide among majors,’” she says. “It’s not politically viable to say every little girl can’t be a ballerina. If we are going to be backing these students going to college, they have to be investments for broader economy. We do have to start looking into individual sectors these students are going into.” Graduation rates are the highest theyve ever been and are slated to grow. Institutions of higher education will have graduated 1.84 million bachelor’s degrees and 1 million associate degrees in 2014, according to the National Center for Education Statistics, and those figures are expected to reach 2 million and 1.09 million, respectively, by 2022.
Posted on: Tue, 24 Jun 2014 23:58:29 +0000
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