Is College Still Worth It?

Based on a study by Cecilia Elena Rouse and Lisa Barrow, Does College Still Pay, published in the Economists' Voice, vol 2, issue 4, 2005 <http://www.bepress.com/ev/vol2/iss4/art3/>

As the costs of college rise, and as more people face the monthly college loan payment, some might begin to wonder, is it worth it? Does college still pay?

For years, the answer to that question was a resounding yes. As the job market increasingly demanded higher-skilled workers and as the bottom dropped out on the wages of the lowest skilled workers, the returns to college were huge. The key reason for the increasing value of a college education was the cost of not having one. By 1989, wages for college grads were more than 70% higher than for high school graduates. That started to change in the 1990s as the wages of non-college grads began to increase, closing the gap somewhat. Couple that with the rising tuition costs and the fact that more youth must fund their tuition with loans instead of federal grants, many are wondering, can I afford to go to college, or is it the case that I can't afford not to go?

Rouse and Barrow recently calculated those costs. They find that the average full-time student who entered college in 2003 and finished in four years would pay $30,325 in tuition and fees. But on top of that are the wages forgone while attending school. If you could make $20,000 each year between age 18 and 22, the future wages from a college degree had better pay that and more if college is worth the time and money. Factoring in this "opportunity" cost of attending college, the cost of attending college rises to $107,277. Therefore, to be valuable, college has to boost lifetime earnings by at least $107,277.

In fact, it does, and more. College will boost a graduate's earnings by $402,959, leaving the net value of a college degree at about $295,682. In short, a student entering college today can expect to recoup her investment within 10 years of graduation. In other words, college still pays.

The big question, though, is will college continue to pay in the near future? For the foreseeable future, the likely answer is yes. Wages for high school graduates would have to increase by 95% with no increase in college-grad wages in order to make the value of college disappear. Even during the booming economy of the mid-1990s, real wage growth for high school graduates averaged only 4.6%. At the same time, we must recognize that while the real wages of college graduates have historically increased over time, globalization and technological progress could change all of that. With technological innovation, even our most skilled workers are starting to compete for jobs with workers overseas, and as supply and demand demands, wages for college grads would likely fall.

Thus, like all other investments, paying for college involves some risk. But, it's also likely to remain one of the best deals around.


Cecilia Elena Rouse is Professor of Economics and Public Affairs at Princeton University and is a member of the MacArthur Research Network on Transitions to Adulthood. Lisa Barrow is a Senior Economist at the Federal Reserve Bank of Chicago.