Economics, Pethokoukis, U.S. Economy

So … is college worth it or not? America is kind of confused

Image Credit: shutterstock

Image Credit: shutterstock

The NY Fed has published a series of blog posts on college education. Let me handle them “save you a click” style. “What is the value of a college degree?”  It remains near an all-time high of $300,000, while the time to recoup the costs of getting bachelor’s degree has fallen from more than twenty years in the late 1970s to about ten years in 2013.

NY Fed

NY Fed

“What are costs of staying in college more than four years?” The average rate of return for a four-year finisher is about 14% with ROI dropping to 11% after five years and 8% after six years. (BTW, 45% of students who don’t finish a degree within six years.) Or to look at it another way, “The net present value of these totals, using a 5 percent discount rate, yields a cost of about $65,000 for each additional year spent in school.

NY Fed

NY Fed

“Does college pay off for everyone?” Here the problem: There is little difference in wages for the bottom 25% of college grads versus those high school-only grads, and “once the costs of attending college are considered, it is likely that earning a bachelor’s degree would not have been a good investment for many” in that bottom quarter.

NY Fed

NY Fed

Finally, “Are the job prospects of recent college graduates improving?” Not so much, The underemployment rate of recent college grads is 46%. vs. 36% for college grads in general, and that’s been rising since 2003. One bright spot: “a larger share of recent college graduates have found good non-college jobs, while the share of recent college graduates working in low-wage jobs has held steady.”


So let’s put the pieces together, via the WSJ:

The broader picture painted by the Fed data is cautionary, said Richard Vedder, an economist and the director of the Center for College Affordability and Productivity. “Out of every 100 kids who enter college, 40 don’t graduate, and for the 60 who do, 15 are in the bottom quartile and don’t make any more money than if they hadn’t gone to college,” Mr. Vedder said. “What that tells me is that college is a pretty risky investment, and we may be over-invested in traditional higher education and under-invested in nontraditional, vocationally oriented programs like long-distance trucking and cutting hair.”

Frankly, I would worry about the potential the automation impact on trucking, but other than that Vedder seems pretty much on the mark. Here is Andrew Kelly striking a similar theme on the “Is college worth it?” issue:

For me, a more effective message would be to tell a prospective student that yes, completing college is, on average, worth the time and money. But not all postsecondary options are created equal, so choose the one that reflects your talents and abilities and gives you the best chance of success. And if you choose to go, work your tail off to make sure you finish. … going to college is typically worth it for those who graduate, but far too many do not.

What can policymakers do? Among Kelly’s suggestions: (a) reform student loan programs by requiring colleges to pay some share of any defaults; (b) promote Income share agreements where private investors fund students in return for a share of their future income; (c) encourage online delivery, career training, and competency-based education by breaking down entry barriers; (d) support other non-college occupational options like apprenticeships and job training.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

3 thoughts on “So … is college worth it or not? America is kind of confused

  1. NOT WORTH ANYTHING…if you plan to major in BIack Studies, Women’s Studies, Ethnic Studies, Journalism, Archeology, Fine Arts, French or Spanish, Education, Communications, Sociology, Religion, Philosophy, Theater & Dance, Cinema, etc.

    You get the picture.

  2. 1.1 billion federal funding for higher education and vocational training. Why is the federal government funding any education? We have a deficit, health care expenditures are eating up all our spending and as the article says, lower income individuals (who can’t afford education) end off with higher risk.

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