Registration for US 2019 is now open          
 
IU
 
General Information
View all
 

Is a degree still worth it? ‘Yes!’ researchers say


12/11/2014


One could be excused for thinking the value of a university or college degree is in a downward spiral. With overall student-loan debt topping US$1 trillion and tuition racing upward, to graduates facing high levels of under-employment and stagnating wages, it might appear college simply isn’t worth it.

However, a new study by two researchers with the Federal Reserve Bank of New York, concludes the opposite is true: The value of a bachelor degree is near an all-time high.

The researchers, Jaison R Abel and Richard Deitz, found that despite some “alarming trends”, a bachelor degree for a 2013 American graduate was worth on average US$272,693 and, when adjusted for inflation, the value of a degree has hovered around US$300,000 for more than a decade.

So 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,” Abel and Deitz write.

In other words, the wages students forego while attending university – the “opportunity cost” -are lower than they used to be, and the average wages for those who don’t have a degree keep falling.

Even though the wages for graduates are not increasing, the gap between their pay and the earnings of those with only a high-school diploma has increased, keeping the value of a degree from falling.

College is actually getting cheaper

A Wall Street Journal write-up said a degree paid off faster than it used to, while a Huffington Post piece focused on the degree’s value.

But what both articles failed to note about the Abel and Deitz research was their finding that the actual cost of going to university 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 university makes up about 80% of the total cost. In 2001, the year the value of a degree hit its peak, the researchers found that universities cost graduates US$125,356 over four years (adjusted for inflation).

Of that, US$105,722 was the amount a student could have earned over those four years, and US$19,633 was the net tuition cost. By 2013, tuition had gone up to US$26,188, but the “lost wages” had dropped to US$95,827. That means the overall average cost of attending college last year was US$122,015, less than in 2001.

“People are familiar with the story of rising tuition cost and out-of-pocket expenses,” Deitz said. “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.”

It turns out the opportunity cost of attending university dropped significantly through the 1970s and 1980s, and levelled off during the 1990s. Researchers found the drop during that period helped reduce the amount of time it took 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 degree has helped to pull wages down for those with only a high-school diploma. A quick look at US Bureau of Labor Statistics data shows that that loss has been particularly heavy in the manufacturing sector, where one in every three manufacturing jobs that was available in 2000 no longer exists.


Source:

The Chronicle of Higher Education