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Why college is still a great investment

Leaving college can be really scary. Let this chart cheer you up.
Leaving college can be really scary. Let this chart cheer you up.
Dan Kitwood

New college graduates saddled with looming student loan payments and low-paying jobs (or no jobs at all) may find themselves questioning why they even went to school in the first place. But a new report suggests they made the right call, and that on the whole, a college degree is still a fantastic investment.

A new analysis from economists at the New York Fed finds that the value of a four-year college education is around three times higher than it was 30 years ago. Researchers Jaison Abel and Richard Deitz analyzed the data on costs and benefits of college and found that college not only pays off; it pays off handsomely.

"[D]espite what appears to be a set of alarming trends, the value of a bachelor's degree for the average graduate has held near its all-time high of about $300,000 for more than a decade," they write.

ROI college 1

Source: Federal Reserve Bank of New York

That figure they're tracking, the "net present value" of a diploma, weighs the total costs of a diploma against the benefits, like the wage premium college graduates earn. While a person is in college, the researchers write, the value of college is negative, as the person is earning no money and is instead forgoing the money they could be making by working. Those two or four years of not-working are the opportunity cost of going to college, which, it turns out, far outstrips the cost of tuition, the researchers write in a related paper.

Opportunity cost

Source: Federal Reserve Bank of New York

Importantly, that opportunity cost in both cases is significantly lower than it used to be. In fact, one striking point about the four-year chart in particular is that the total cost of college has held relatively steady while tuition has risen — the total cost right now, for example, is roughly where it was in the early 1970s, while tuition has clearly grown multiple times over. That's because opportunity costs have fallen enough to offset the tuition increase.

The authors distill what's going on here:

Why has the value of a college degree remained so high even while tuition has been rising and the wages for college graduates have been falling? The primary reason is that the wages of high school graduates have also been falling, reducing the opportunity costs of going to school and keeping the college wage premium near its all-time high.

That doesn't mean college pays off for everyone, they also note; there are also many graduates who don't see those benefits. Additionally, one thing you can read into that first chart is that while the net present value of college is still high, it's starting to inch downward. If college costs accelerate or if graduate wages continue to be stubbornly low, that could continue and make the decision to go to college all the tougher for future high school grads.