YOU DECIDE: Is college still worth the cost?

Date posted: November 11, 2011

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

Recently I had a thoughtful discussion with a N.C. State University student. He was questioning whether getting a college degree was still worth his time and cost. He had friends who had recently graduated who couldn’t find a job in their field. He just wondered if he was wasting his time staying in school.

Here’s an expanded version of what I told the student. First, there’s no question the job market for college graduates is not as good today as it was four years ago, prior to the recession. Today’s unemployment rate (for September) of workers with a college degree is 4.2 percent; in early 2007 it was under 2 percent.

But this is far better than for workers with a high school degree, for whom the most recent unemployment rate is 9.7 percent! In early 2007 the jobless rate for workers with a high school degree was as low as 4 percent. Thus, the difference between the college unemployment rate and the high school unemployment rate has expanded from 2 percentage points four years ago to 5.5 percentage points today.

Now, what about salary? Of course, many factors impact what a worker earns, including age and experience, occupation and hours worked. Fortunately, we have data available from the Census for young workers (aged 25-34) working a full-time schedule and with different levels of educational attainment.

After accounting for inflation, the bump up in annual salary for young males working full-time with a bachelor’s degree versus a high school degree actually declined from $29,845 in 2006 to $22, 354 in 2009, the latest year available and also the low-point of the recession. For females there was a similar decline, from $21,597 in 2006 to $19,059 in 2009.

The decline in the bachelor’s degree salary premium may seem surprising. However, the recession — like no other in recent history — really clobbered professional and technically oriented jobs, especially in areas like finance, management and sales. As businesses in these fields saw their revenues drop, they often had to reduce salaries for their workers.

Still, even with the reduced pay premium for a bachelor’s degree, the expected gains in total earnings over a work life are substantial. For example, if a 22-year-old male college graduate works until age 62, the total gain in salary over the 40 years would be $894,160 (40 times $22,354). For the female college graduate, the gain would be $762,360 (40 times $19,059). Expressed in today’s dollars using a 2 percent “discount rate” – the rate at which the dollar’s value is expected to decline each year – the values are more than $600,000 for a male and near $525,000 for a female.

Even with these impressive gains, I am well aware — partly because my students constantly remind me — that going to college isn’t cheap, and it has become even less so recently. In the last 10 years, average college tuition and fees have almost doubled, compared to a 27 percent hike for all other prices in the economy.

Indeed, there is a great debate among academics and others about why college costs have risen so much. Some say the higher costs simply reflect the increased value of a college education in our modern economy, as jobs have shifted away from those requiring brawn-power to those needing more brain-power. Others say college prices have jumped because government, especially the federal government, has expanded financial assistance to students, thereby putting more money into the college system.

Regardless of which reason is correct, college students do receive financial help. Most colleges and universities pay for their expenses in three major ways: tuition and fees collected from students, teaching and research grants from outside sources and direct financing from state governments. The state aid is based on the recognition that having a college-educated workforce is one way of attracting higher-paying jobs.

Traditionally, North Carolina has been very financially supportive of public universities. The U.S. Census Bureau shows North Carolina ranks sixth in the country in government financial support per full-time-equivalent student in colleges and universities. Average tuitions for students in four-year public universities in the state are 35 percent under the national average, and they are 50 percent less than the national average for students in two-year public colleges.

So the bottom line appears to be that, even in these challenging economic times, there’s a big pay-off to a college education. This is not to say that going to college is for everyone. There are still good jobs to be had in skilled trades and similar vocations. Also, there are many examples of the high school drop-out or graduate who went on to become a millionaire or billionaire!

But if you’re one to play the odds, then as long as you have the interest and desire, the surest route to a good financial future is through the halls of a college or university. Fortunately, in North Carolina we do a lot to make that possible. But, in the end, each person will have to decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

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