Do the Benefits of College Outweigh the Financial Costs?

Topics: Higher Education

Ways to reduce college debt include moving towards competency education, attending an early college high school and synching college course selection with degree requirements. Is college worth it?

That’s what Jaison R. Abel and Richard Beitz try to answer in the newest issue of Current Issues in Economics and Finance from the Federal Reserve Bank of New York.

In the U.S., there are 40 million people with student loan debt. There is more than $1 trillion in aggregate student loan debt, and more than 11 percent of student loan balances are delinquent or already in fault.

The number of people with student loan debt is increasing with each graduating class. And the costs of tuition are rising. In a recent special on PBS NewsHour, show host Hari Sreenivasan reported, “Tuition at public institutions has risen more than 50 percent over the last decade. It’s a significant number given that 70 percent of undergraduates in the United States attend public institutions.”

Is all of the debt people are carrying to be able to attend college worth it? Abel and Dietz say yes.

Looking at the period between 1970 and 2013, their research shows that people with a Bachelor’s degree on average earn 56 percent more than high school graduates. Individuals with an associate degree also earn more, on average 21 percent more than high school graduates. When examining all factors and costs associated with college, Abel and Dietz’s research shows about a 15 percent return on the investment of a Bachelor’s degree or an associate degree.

So 15 percent. How does that compare to other investments you can make? If you’re lucky, you might earn 1 percent interest on a savings account. With a good long-term CD, or certificate of deposit, with a bank, you could earn 1.5 percent interest. Actuaries estimate that 6% is realistic rate of return to expect on retirement investments.

In comparison, a 15 percent return on the investment in education is pretty outstanding.