With the cost of college constantly rising, it’s easy to wonder whether four years of college is worth it anymore.
But new research from the Federal Reserve Bank of New York concludes: yes, a college degree still pays off.
The average college graduate earns $78,000 a year compared to the $45,000 earned by someone with only a high school education, according to the analysis. That’s a 75% premium, or more than $30,000 a year.
The wage premium for a college education rose from less than $20,000 in the 1980’s to $35,000 in the 2000’s. Since then, it has fluctuated between $30,000 and $35,000 a year.
The unexpected cost of college
While the price of college has increased significantly since the 1970’s, students aren’t paying as much as the price tags suggest, according to the study, which updated research from 2014.
While the sticker price continues to go steeply higher, with the average cost of college at $18,000 a year, the price students actually pay after grants and other assistance – or the “net price” – is around $8,000.
That means that if the average four-year college education looks like $72,000, it may come in more like $32,000 out-of-pocket once grants and other aid are factored in.
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The net price is not only much lower than the sticker price, but it’s also increasing at a slower rate, according to the researchers. The average sticker price of college grew from $5,000 annually to $18,000 between 1970 and today. But net prices increased from $2,300 to $8,000 during the same period.
And the tuition isn’t always the biggest cost involved in getting a college education. The opportunity cost – or the income a student loses out on when they take four years out of the workforce to go to college – is much greater.
The strong job market has pushed up wages for those with only a high school diploma as well as those with a college degree. So while someone with a college degree will eventually command a higher salary, they still lose out on four years worth of wages, amounting to an average of $120,000, the New York Fed found.
A college degree is still a good investment
As an investment, a college degree has an average rate of return of 14%, the study found, well above the long-term return benchmarks for traditional investments like stocks at 7% or bonds at 3%.
But this isn’t always apparent to families during the college search. Since the cost of college is up front and the benefits are doled out over many years, the economic value of a college degree is often hard to see.
The value of a degree was boosted by the technology expansion of the 1990’s, but has gone down a bit in recent years. Despite the drop, the report says the overall long-term benefit of college still outweighs the costs.
