How Much Is Too Much to Spend on College? One Study Has an Answer.

by Nora Caplan-Bricker | February 16, 2014

It looks like college is still a good value. And even if costs keep climbing at their current rate, it will remain so until the year 2086, at which point a four-year degree will cost approximately $725,000—or at least, that’s the conclusion of a new study from policy consulting firm Hamilton Place Strategies.

The authors calculated that the average difference in lifetime earnings between a college graduate and a person who only attended high school was $725,000 in 2011; the distance between an associate’s degree and a bachelor’s amounted to $340,000. Since the average price tag on a four-year degree was $92,000, the decision to attend college was, in the barest terms, worth $633,000. The number doesn’t rely on any optimism about the economy: The authors assumed no gain in college graduates’ wages, a number that has stayed largely flat for over a decade.

By projecting the inflation of tuition at the current rate, they found it will take until 2086 for the gap to close. In short, “a college degree remains one of the best investments there is.”

These findings dovetail with a Pew Research Center study released Tuesday, which found a disparity of about $17,500 between 25- to 32-year-olds with and without bachelor’s degrees in 2012. College graduates are only a third as likely to be unemployed, and a quarter as likely to be living in poverty, as high school graduates, and reported career satisfaction 16 points higher.

Between variations in the economy and innovations in education, Hamilton Place partner Matt McDonald doesn’t expect his predictions will actually come true. “I think it’s most valuable as a thought exercise and an anchoring point for people to understand the economics at work,” he explained. Still, he said: “I was surprised by how far we have to go before there’s any price pressure” to drive the cost of college down.

That may come as news to anyone who has been following the debate over student loans, or the White House’s proposal to give college-goers a better bang for their buck. But McDonald says the study is as much a lesson about viewing a B.A. pragmatically as an exhortation to get one. While both state universities and top-ranked schools with generous financial aid programs are a good deal, programs that fall in the middle are often less so. And taking on high amounts of debt to pursue a low-paying career can eat into a several-hundred-thousand-dollar margin, fast.

“There’s probably some degree to which the deromanticization of college would be a healthy exercise,” McDonald said. “The era when you go find yourself for four years, if that ever made sense, probably doesn’t make sense any more.”

The study does not take into account the many students who drop out of college, leaving with debt but no degree, or who take longer than four years to graduate. Only 59 percent of students who entered a four-year institution in 2005 had graduated six years later, in 2011, according to the National Center for Education Statistics.

It does, however, seek to quantify the signaling, or “Sheepskin,” effect—the importance of having a degree because of the message, rather than the skills, it conveys. It “accounts for the marginal benefit received by a college graduate over an equally capable candidate who does not hold a degree.” The study attributes anywhere from 10 to 50 percent of the earnings gap to the power of signaling.

Neither this study nor Pew’s is an argument against reform—between predatory lenders and unsupportive institutions, the cost-benefit equation for many students comes out far below Hamilton Place’s average line. But even if the whole system comes crashing down in the year 2086, college is decisively worth it for now.

Source URL: http://www.newrepublic.com//article/116629/college-costs-college-will-be-worth-it-until-it-costs-725000