Yet Another Post Trying To Answer If College Is Worth The (Increasing) Cost


The short answer: yes. College is still worth the cost.

While the cost of college has increased in the last few decades, the net present value of a college degree has held relatively steady, according to a research report by the Federal Reserve Bank of New York.



Thus, someone obtaining a bachelor's degree today would hold an asset worth about $260,000. Keep in mind that this is a median figure; as we've discussed previously, due to earnings potential some degrees will be worth more (engineering, medical), while others will be worth less (social services, arts). This is not meant to be an analysis of the relative cultural or emotional worth of these degrees, but rather solely an economic observation.

However, in considering the value of a degree, one must also consider the earnings potential of someone without a college degree, as this chart (also from the Federal Reserve) shows:

Here you can see that the median earnings of someone with a degree has stayed relatively steady, once adjusted for inflation, while the earnings potential for those without a degree has decreased steadily. Alarmingly, the chart above ends in 2008, just before the effects of the recession began to be realized. I would guess that data from 2008-2014 has decreased earnings for those without degrees even more.

Thus, the relative value of a college degree has increased not because of an increase in earnings for the degree holder, but a decrease for those without.

The increasing cost of college has certainly increased, steadily, for my entire lifetime. This is the real root of the problem. Today it costs about four times as much after adjusting for inflation (about 12 times in nominal terms), outpacing the increase in just about every other expenditure, including energy and medical care.



Hence, as the current cost increases, the present value of a degree decreases, as we saw in the first chart.

Another one way of thinking about value is considering the time needed to pay for a college degree. Again, from the Federal Reserve Bank of New York:



With the median wage difference for those with and without a college degree at $15,000 - $20,000 per year, it would make sense that it would take about ten years of working at that higher salary to pay off the cost of college.

The final consideration is the prospects of finding a job. Just like when we looked at the data back in May, the unemployment rate is about three times higher for those without a degree (9.1%) than those with a college degree (3.2%). Thus, people with a college degree not only get paid more on average than those without, but they have an easier time finding a job. 

Of course there are many other factors, including the cost of the degree (including financing costs), as well as the type of major, and job opportunities, but on average obtaining a college degree is still a very good idea

The best we can tell, each additional year of education adds about 8% to your lifetime earnings potential.

Bill