Douglas Webber is an associate professor in the economics department at Temple University in Philadelphia, where he focuses on labor and the economics of higher education.
A recent study from the Federal Reserve Bank of St. Louis (opens in new tab) suggested that the value of a college education has declined. Is college still worth the cost? For the average person, college is still overwhelmingly a good decision. But like any investment, there are risks. The potential negative consequences are greater now than they were for previous generations. Not only are you taking time out from the labor market, but you're paying more to attend college. Plus, many students are taking out debt that's nearly impossible to discharge in bankruptcy. But the biggest risk is not graduating, because you still have the debt but don't have a degree.
Do workers who graduate with a bachelor's degree still out-earn workers without a college degree? Yes, but the price of attending college has gone up, so the net return of a college degree has gone down a little bit. Still, over a lifetime, college graduates earn about $900,000 more relative to high school graduates. Even if you discount that figure to take into account the types of students who go to college, the "opportunity cost" of not being in the labor force and other factors, the net value of a college degree is still about $350,000 over your lifetime compared with a high school degree.
How does the major a student selects affect the outcome? The choice of a major may be the single biggest financial decision people will ever make. If you list majors from top to bottom based on earnings, it's roughly a $2 million differential. But lifetime earnings shouldn't be in the top three things that you base your decision on, in part because job satisfaction matters. There's an economic reason, too. If you compare average earnings for an English major to, say, an accounting major's earnings, accounting looks a lot better. But frankly, if that person is not very good at accounting, they'll earn less than the average accounting major. In that case, you may maximize your earnings potential by choosing English.
How does student borrowing factor into the equation? Debt is a huge factor. If you take out a lot of debt for a low-earning major, the chances that it's going to pay off are less than 50-50. If you're an engineering major with a generous financial aid package, the chances it will pay off are virtually 100%.
And there are huge differences between federal student loans and private student loans. The protections that exist within the federal Stafford loan program are very strong and limit the consequences if you're unable to repay your debt. Private student loans don't have those protections. If you're attending a lower-cost school, you might be able to get most or all the way through college with only federal loans.
What should students and families consider when choosing a school? Finding a school that's right for you is a very personal decision. But it's important to look up a school's graduation rate, average earnings of graduates and other statistics on CollegeScorecard.gov (opens in new tab) to see if the school does a good job of getting students through to graduation and helping them find good jobs.
Students generally have a good sense of the value of different majors. They know that economics, engineering and finance are the high-earning majors and that music, humanities and the liberal arts are low-earning majors. But they have a really poor sense of the magnitude of the difference. Students should make a list of the majors they're considering and then look at the projected earnings for each. Understanding that won't change a lot of decisions, but they should be aware of the labor market they'll be going into.
6 Ways a DAF Can Make Your Year-End Giving Better Than Ever
Giving appreciated assets instead of cash could be the most tax-smart move you can make with a donor-advised fund, but wait, there's more…
By Stephen Kump • Published
Life Insurance Strategies to Consider When You Own a Family Business
Not only can life insurance replace lost income, but it can help with estate taxes and provide a sense of fairness for family members who don’t participate in the business.
By Howard Sharfman • Published
The Best Cash Back Credit Cards
Smart Buying Not interested in miles, points or other perks from your credit card? If you want money back, with a minimum of games, these cashback cards are the way to go.
By Lisa Gerstner • Published
Student Loan Forgiveness Blocked For Now Due to Court Ruling
For now, a Texas federal court ruling has caused the Biden administration to block new applications for student loan forgiveness.
By Kelley R. Taylor • Published
I-Bond Rate Is 6.89% for Next Six Months
Investing for Income If you missed out on the opportunity to buy I-bonds at their recent high, don’t despair. The new rate is still good, and even has a little sweetener built in.
By David Muhlbaum • Last updated
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner • Last updated
529 Plan Contribution Deadlines Coming Soon in Many States
Year-end state deadlines for making 529 college savings plan contributions that can maximize state tax breaks, are coming soon.
By Kelley R. Taylor • Last updated
Your Guide to Open Enrollment 2023
Employee Benefits Health care costs continue to climb, but subsidies will make some plans more affordable.
By Rivan V. Stinson • Published
Watch Out for Flood-Damaged Cars from Hurricane Ian
Buying & Leasing a Car In the wake of Hurricane Ian, more flood-damaged cars may hit the market. Car prices may rise further because of increased demand as well.
By Bob Niedt • Last updated
What You Need to Know About Life Insurance Settlements
life insurance If your life insurance payments don’t seem worth it anymore, consider these options for keeping the value.
By David Rodeck • Published