The financial case for investing in a college degree
Source: AFP/Chris Hondros

Is college – and its skyrocketing costs and potentially crippling student debt – worth it?

A new report says yes, it still makes financial sense to get a degree.

The research by the Federal Reserve Bank of New York wrote:

“We find that the average rate of return for a bachelor’s degree has edged down slightly in recent years due to rising costs, but remains high at around 14 percent, easily surpassing the threshold for a good investment. Thus, while the rising cost of college appears to have eroded the value of a bachelor’s degree somewhat, college remains a good investment for most people.”

College graduates were found to earn more than their peers with lower qualifications. During the 1980s and 1990s, the “college wage premium” rose from less than US$20,000 to around US$30,000. After 2000, they settled into a relatively narrow range of $30,000 to $35,000.

Today, this premium remains substantial, the report found. The average bachelor’s degree holder earns an annual income of US$78,000, or 75 percent more, compared to US$45,000 annual income for the average worker with only a high school diploma.

These findings were based on an examination of average wages, which were adjusted for inflation and other labour market changes over time.

The report continues, “We estimate that the return to college hovered between eight and nine percent until the early 1980s, then climbed to almost 16 percent following the technology-fueled economic expansion of the 1990s, where it remained, more or less, through the Great Recession. Over the past several years, this return appears to have declined slightly, drifting down by roughly two percentage points to just under 14 percent.”

This figure surpasses various investment benchmarks such as the long-term return on stocks (seven percent) or bonds (three percent).

“Thus, while the rising cost of college has eroded the return to a bachelor’s degree to some extent, our analysis suggests that college remains a good investment, at least for most people,” the report said.

Some college graduates would likely disagree. A report by Merrill Lynch and Age Wave published earlier this year found more than one-third (36 percent) of college graduates paying off student loans say taking on that debt was not worth it.

In another poll by GoBankingRates, 42 percent of Americans say college was not worth the financial investment. However, more than four out of five (88 percent) said they have no regrets deciding to go to college.

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