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Financial Matters: Does Attending College Make Financial Sense?

Media stories about the rising cost of a college education and student debt, combined with the lingering economic effects of the recession, have led many people to question whether it still makes financial sense to attend college.

The answer is a resounding yes, according to research from the Federal Reserve Bank of San Francisco. The Fed’s researchers analyzed U.S. labor data and found that, on average, people with a bachelor’s degree earn over $830,000 more than people with high school diplomas over the course of their working lives, even when the cost of attending college is taken into account.

The recession of 2007-2009 appears to have had little effect on this “college earnings premium.” Researchers grouped workers into cohorts by decade and compared the earnings premium of those graduating in the 1950s – 1960s, the 1970s – 80s, and the 1990s – 2000s. Although the earnings premium fluctuated over time, its lowest point was actually in the 1980s, when college graduates earned about 43% more on average than those with only a high school diploma. In 2011, the latest year for which data is available, college graduates earned, on average, about 61% more than high school graduates. “There is little evidence to suggest that the value of a college degree has declined over time, and it has even risen somewhat for graduates five to ten years out of school,“ the researchers wrote.

But, what about rising college costs? Does the cost of a college degree today negate the value of the college graduate earnings premium? Again, the researchers found that this popular perception wasn’t supported by the hard data. Taking inflation and lost earnings while in college into account, the researchers compared the average earnings of a college graduate, which increase over time, to average college tuition costs in order to calculate breakeven scenarios. They found that the average college graduate recoups the cost of attending college in their extra earnings in less than 20 years. The researchers noted that once the breakeven point is reached, college graduates continue to enjoy the benefits of higher earnings for the rest of their working years.

“The value of a college degree remains high,” the researchers noted in their report. “Although other individual factors might affect the net value of a college degree, earning a degree clearly remains a good investment for young people.” When you add in the benefits of more interesting work, more chances for advancement, more stable personal lives and even longer life spans, the cost of getting a college degree seems even more of a bargain.


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