The Rising Value Of A University Degree

A few years ago, the value of a college degree was indisputable. It was a guaranteed ticket to a high-paying job, a good, stable career and a comfortable life. Today, as bachelor’s degrees are more prevalent, many students look at them as a pre-requisite to any semi-decent job or post-graduate education. With rising tuition, high student debt and intense competition for jobs, there is also much cynicism about the value of only a bachelor’s degree. However, despite what it looks like, a new study by two researchers with the Federal Reserve Bank of New York concludes that the value of a bachelor degree is near an all-time high.

(source:tuition.io)

Researchers Jaison Abel and Richard Deitz state that the actual cost of going to university is decreasing. They calculate the costs by measuring the average tuition and fees paid by undergraduates plus the opportunity costs of attending university. “People are familiar with the story of rising tuition cost and out-of-pocket expenses,” Deitz said.

“But people forget that they are also giving up the wages they could be earning during that time. Just because you do not see something does not mean it’s not important.”

The benefits for the average graduate are measured by summing up the college wage premium, or the extra wages obtained by holding a university degree as opposed to a high-school diploma, over an average working life of 40 years. This shows us that the present value of a college degree in 2013 is worth nearly $300,000 and was worth only $80,000 (in 2013 dollars) in the 1980s. Another way of looking at it is that compared to the 1980s, when it took more than 20 years to recoup the costs of a bachelor’s degree, it only takes about 10 years in 2013.

Abel and Deitz believe that the “primary reason is that the wages of high-school graduates have been falling, reducing the opportunity costs of going to school and keeping the college wage premium near its all-time high.” This means that as the wages paid to people with only a high-school diploma fall, the sacrifice or lost opportunity by going to university decreases; yet, the college wage premium, or expected fresh graduate salary is the same. While graduate salary isn’t increasing, the gap between graduate salary and high-school wages is increasing, maintaining the value of a bachelor’s degree.

Also, not only has the demand for jobs that pay well but do not require a degree decreased, but with fewer and more competitive jobs, degree holders have started taking up jobs below their qualifications. This kind of under-employment leads to graduates earning lower than their wage potential. So, even though the changing trends make the absolute value of a university degree higher, the economic outlook for graduates remains just about the same.