News flash: College is expensive, and it is just getting more expensive.
OK, that’s not exactly breaking news, but it is news that has received a lot more attention lately with all the talk of rising tuition costs, student loan debt and various political candidates’ plans to forgive student loan debt should they be elected into office. Tell us you don’t read that last sentence, and just get tired at the sight of it…
Yes, with all of the talk about college costs, it’s left many people wondering if a college education is even worth it anymore. Thanks to a new study conducted by the Federal Reserve, we have an answer to this question — and the answer is an overwhelming “yes.”
Specifically, the new research found that the average student with a college degree earns nearly $80,000 per year. That’s compared to the $45,000 per year that the average professional with just a high school education earns. That’s about 75 percent more per year that a college educated professional earns compared to someone without it, clear evidence that shows just how valuable higher education still is.
High Risk, High Reward
You could say that attending college is becoming a high risk, high reward venture. It comes with high risk because college is expensive, and there’s no guarantee that there will be a job waiting for you in your field of study upon graduation. But as evidenced by the Federal Reserve study, the high risk often has a high reward — and the firm’s research puts a dollar amount behind this reward to show you just how significant that payoff could be long-term.
In fact, according to the Fed, the wage premium for a college education increased from below $20,000 in the 1980s to more than $35,000 just 20 years later in the 2000s. Since then, it’s hovered between $30,000 and $35,000 per year. It’s not quite keeping up with the pace of rising tuition costs, but think of it this way: If you’re a college educated professional who works for 30 years before retirement, that’s about $900,000 more you would have made over this span compared to someone without a college education.
So, while student loan debt might be hard to justify for a young professional today, they’re likely to more than make up for the investment in their education in the long run — even when you consider that they’re essentially losing out on four years’ worth of wages while they attend school.
The Cost of an Education
Today, the average cost of college is about $18,000 per year, with the average four-year price tag coming in around $72,000. This average annual cost has gradually increased from about $5,000 per year from the 1970s when more students began opting for college after high school rather than heading out right into the workforce.
Still, despite the price for college today, the Fed says that the average return on investment is about 14 percent. For the sake of context, that’s well above any long-term ROI for stocks (~7 percent) and bonds (~3 percent). You can even maximize your ROI on college further if you’re not taking out as much in student loans and are able to put savings toward tuition, or earn scholarships and grants that can help offset the costs of tuition. The scholarship and grant opportunities are out there for students, it’s just a matter of knowing what they are, if you qualify, and then taking the time to apply for them.
College is a hot topic in the news today, and it’s only going to become a more popular topic of conversation in the months leading up to the 2020 election as various candidates attempt to jockey up the polls. But if you think that it isn’t worth it to attend a university and earn a degree any longer, you need to think again. The study from the Fed overwhelmingly supports attending college, and it backs it up with quantifiable data.
Bottom line: It pays to go to college — literally.
Regards,
Ethan Warrick
Editor
Wealth Authority
