Abstract
In
recent years, students are paying more to pursue a college education. The trend
has raised questions whether college education still remains a good investment.
However, the return remains high despite an increase in tuition expenses and
falling earnings, keeping the college premium high while reducing the
opportunity cost of attending college. This paper discusses the economic
returns of attending college to demonstrate that the benefits of attending a
college outweigh the costs.
Economic benefits of a
college education
College tuition has been increasing sharply over time. The sluggish
labor market recovery from the Great Recession has fueled the argument about the
value of college degrees. The economic
benefit of obtaining college education can be thought of in terms of additional
wages earned by individuals with college degrees compared to earnings by those
without a college education. According to the U.S Bureau of labor Statistics,
the weekly earning of an individual with a Bachelor’s degree was $1156 in the
year 2016. For the same period, a person
with a high school diploma earned $692 in weekly earnings (Bureau of
Labor Statistics, 2016).
College graduates have a high average wages compared to high school
graduates. The wage differential provides a rough guide to show the economic
benefits that accrue to college graduates. The wage differential may be
attributed to skills, aptitudes and other characteristics that make college
graduates different from those who do not attend college. This implies that the
benefit of a college degree arises from the different abilities that college
graduates have or the essentially the added value that college education provides
to students (Jones & Yang, 2016).
Additionally, the wages of college graduates improved sharply in both
relative and absolute terms during the 1980s and 1990s. These were considered
the “golden years” for college graduates. As computers and other technological
advancements became popular, the demand for skills in the workplace increased,
and college enrollment increased too. The forces combined pushed the wages of
college graduated high rapidly while those of a high school graduate remained
essentially consistent. As a result, the wage premium associated with college
graduates increased and the gap has not been closed yet (Bureau of Labor
Statistics, 2016).
However, recent times have been challenging for college graduates as
the average wage declined 10.3 percent between 2001 and 2013. For the same period, the average wage for
high school graduates declined by 7.6 percent. However, even with the decline
in wages, individuals with a bachelor’s degree enjoy a higher wage premium,
more than high school graduates. This factor is essential in determining
whether a college degree is a good investment (Hoxby & Stange, 2017).
Another benefit associated with a college degree is lifetime earnings.
The benefits associated with high education last over one’s lifetime. For
simplicity, assuming that a worker retires as the age of sixty years and that
those who attend college follow the traditional path of four years to pursue a
bachelor’s degree, the lifetime earnings are significantly high. Despite
joining the labor force at a later age, individuals with a college degree earn
over $1.5 million more than high school graduates who entered the workforce
earlier (Bureau of Labor Statistics, 2016).
Economic Costs of College
As with all investments, a college degree requires that the student
pays some upfront costs in order to pursue education. The costs of college can
be categorized in two: direct and indirect costs. Direct costs are those out-of-pocket expenses
incurred by the mere act of attending a college that would not have otherwise
been incurred if the student did not attend college. By contrast, food and
accommodation expenses associated with attending college are indirect costs
since they would be incurred regardless of whether a person decides to go to
college or not. Hence it is not
considered a direct cost of attending college from an economic
perspective. The third type of cost
incurred by students who attend college is the opportunity cost. College
students must give up something to attend college. Most individuals who attend
college forego wages that could have been earned entering directly into the
workforce instead of going to college.
Direct Costs and indirect
costs
To measure direct costs of college, Information from the College Board
is used. While tuition and fees
represent the direct cost of attending college, many college students, do not
essentially pay this price because they may receive financial aid. According to
the College Board, the average cost of college education in the United States
averaged $24,610 in the year 2016-2017.
The amount is for an in-state public college. The annual costs of attending a private
amounted to $ 49,320. Tuition can vary
by institutions and majors. Students in the computing, engineering, sciences,
fine arts and premed programs often pay more.
Fee for services may or may not be included in the yearly tuition.
Colleges charge fees for services such as campus transportation, library,
athletic facilities and student government. According to the College Board, the
average combined cost of tuition and fees for the 2016–2017 school year was and
$24,930 for out-of-state residents in public universities, $9,650 for state
residents at public colleges and $33,480 at private colleges.
Other costs that college students are likely to incur include the cost
of house and meals. Cost of house and meals depends on the facilities and food
that students choose. The College Board report shows that the average cost of
room and food in 2016–2017 ranged from $10,440 to $11,890. The additional cost
of college includes required learning materials such as books, School supplies
and computer and computer accessories. The College Board report shows that the
cost of books and supplies for the same year amounted to $1,230 at private
colleges and $1,250 at public colleges. The cost of college education has
changed over time. It has increased sharply more than three times in the last
two decades. Net tuition has risen at a similar pace (College Board, 2017).
Opportunity Costs of continuing
education
While increasing costs of college education receive significant
attention, out-of-pocket expenses only form part of the total cost when
opportunity costs are taken into account.
Assuming that a student attends college on a full-time basis, they
experience delays entering the labor market. Hence, individuals forego wages
that would be available to those who entered the market with high school
diplomas. This means that money earned by high school graduates during the
first four years of employment is a good proxy for the opportunity cost of
college. Assuming that a person enters the labor force immediately after
completing the diploma and earns $692 in a week, the total earnings per year
would amount to $ 35,984. In four years,
a college student will have foregone $ 143,936.
Total Costs
Putting the pieces together, the total cost is given by adding total
direct cost and opportunity costs. The average combined cost of college
education for the 2016–2017 school year was $9,650 for state residents in public
colleges. The total amount of direct cost in four years is $38600 the total
opportunity cost of foregoing college education in four years is $ 143,936. The estimation is that over a four-year
period, a student requires to attain a college degree, a student would have
paid about $38600 in tuition and fees and would have forgone approximately $
143,936 in wages. Thus, the total economic cost of a college degree is
approximately$182536.
Analysis
The benefits of attaining a college degree outweigh the costs of not
attending college. While tuition is rising, and college graduates finding it
difficult to find rewarding jobs, the economic value of a college degree may
seem low. However, these factors alone
do not determine cannot be used to determine whether a college education is a
viable investment. According to the costs and benefits analysis, a college
education is still a wise economic decision. The answer lies in the lifetime
earnings of college-educated individuals and declining fortunes of people without
a college degree. This is an essential consideration of obtaining a college
degree. Although the wages of college
graduates have been declining and stagnating over the years, those of high
school graduates have also been declining. This means that the college wage
premium has remained all-time high compared to that of high school diploma
holders.
Rising college fees have significantly been offset by the declining
opportunity cost of going to college. When all pieces are put together, the
return of pursuing a college degree remains high on average, regardless of the
major selected. However, the analysis assumes that both high school graduates
and college graduates enter the labor market enter the labor market at expected
points in time. There is no guarantee that the earnings patterns will hold in
future. Nevertheless, investing in a college degree is more important given
that those who do not pursue further education after high school are falling
further and further behind. By focusing entirely on what students pay, the cost
of attending college may seem high.
Conclusion
The benefit to students is measured by taking into account the amount
earned over what they would have earned if they did forgo college and entered
the labor force immediately after high school. The amount is compared to the
direct cost of attending college and lifetime earnings of college degree
holders. The estimation is that over a four-year period, a student requires to
attain a college degree, a student would have paid about $38600 in tuition and
fees and would have forgone approximately $ 143,936 in wages. Thus, the total
economic cost of a college degree is approximately$182536. The benefits
associated with high education last over one’s lifetime. Assuming that a worker
retires as the age of sixty years and that those who attend college follow the
traditional path of four years to pursue a bachelor’s degree, the lifetime
earnings are significantly high. Despite joining the labor force at a later
age, individuals with a college degree earn over $1.5 million more than high
school graduates who entered the workforce earlier. In all categories, college
education came out ahead.
References
Bureau Of Labor
Statistics (2016) Earnings by Education attainment.
College Board
(2017) What's the Price Tag for a College Education?
Hoxby, C. M., & Stange, K.
(2017). Introduction to" Productivity in Higher Education". In Productivity
in Higher Education. University of Chicago Press.
Jones, J. B., & Yang, F. (2016).
Skill-Biased Technical Change and the Cost of Higher Education. Journal of
Labor Economics, 34(3), 621-662.
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