While a number of people think that investing in a college degree is nothing more than a waste of money, the Federal Reserve Bank of New York proves otherwise.
With the rising cost of education, especially the enormous amount that one has to spend for a decent college, people cannot help but wonder if it's even worth it at all. Thankfully, a new research published by the Federal Reserve Bank of New York will help you determine the importance of pursuing a higher course of studies. According to this deduction of the said report, it indeed does prove to be useful, reports CNN.
The research begins by calculating the average amount of money that a college graduate and someone straight out of high school earn. The result shows a stark difference as it reveals the average amount earned by the former comes up to $78,000 per annum while the latter only earns around $45,000 yearly. Thus a huge gap of more than $30,000 can be seen. This analysis also exhibits how the wage premium of a college graduate increased from less than $20,000 in the 1980s to $35,000 in the 2000s.
However, since the rise, there's been a constant fluctuation in the difference which usually lies between $30,000 and $35,000. It won't be wrong to say that college fees have risen significantly since the 1970s. Moreover, the lump sum amount that is reflected in the brochure is definitely not the final price tag students have to pay says research updated in 2014. For example, if a student has to pay $18,000 a year, they actually might just have to pay $8000 after all the financial aids and grants are factored in.
In that case, if the average cost of the four-year course is $72,000, the amount that goes out of the student's pocket is only $32,000. While the net price seems to be lower than the actual price, the rate at which it's increasing is pretty slow says research. Based on the analysis the average sticker price of college has said to have increased from $5,000 annually to $18,000 between 1970 and today. At the same time, the net amount that students actually have to pay has increased from $2,300 to $8,000 during the same period.
The New York Fed discovered the main cost doesn't lie in the actual amount that's paid for the education rather it is the four years of wages that students who choose to pursue a college degree miss out on. Due to the high demand in the job market, companies have pushed up wage rates in order to acquire more and more employees. So, the headstart that these students get while college grads are still studying in college, the difference increased and they usually lose out on $120,000 which they could have earned in those four years.
But the study still proves how investing in a college degree is actually a very good idea. If you decide to invest in a college it will fetch you a return at the rate of 14% which is way above the long-term return benchmarks for traditional investments like stocks at 7% or bonds at 3%. "In the period between 1970 and 2013 as a whole, those with a bachelor’s degree earned about $64,500 per year and those with an associate’s degree earned about $50,000 per year, while those with a high school diploma earned only $41,000 per year," explains the research.
Thus, over the past four decades, those with a bachelor’s degree have tended to earn 56 percent more than high school graduates while those with an associate’s degree have tended to earn 21 percent more than high school graduates. However, these wage premiums have fluctuated over time," it adds. However, while parents are looking to get their children into colleges they might not be thinking about the bigger pictures as they are very much disheartened by the cost that these colleges show on paper. With the technological advancements, the value of getting a degree increased by leaps and bounds in the 1990s but has suffered a drop in the past few years. That being said, reports have determined that despite this drop, the overall long-term benefit of getting a degree still outweighs the costs.