School still pays. The cost of earning a college degree pays off with consistently higher lifetime earnings, according to the Federal Reserve Bank of San Francisco.
Earnings for those with college degrees averaged about $20,300 more per year over the past four decades than for workers without one, Mary Daly, the bank’s associate director of research, and researcher Yifan Cao said in a report Thursday.
They said an undergraduate degree yields a lifetime return on investment of more than $420,000, assuming costs for four years of tuition and forgone earnings totaling $112,194.
“College is an excellent investment for most people,” Daly wrote in an essay, one of three included in the bank’s annual report. “A college degree comes with higher earnings, some insurance from the ups and downs in the economy, and a path up the economic ladder.”
The Fed bank’s message is timely as high school seniors over the last week received their admissions notifications from colleges, and families across the U.S. have started turning their attention to how they will pay tuition bills.
Tuition and fees at private nonprofit colleges totaled $31,231 on average this academic year and $9,139 for in-state residents at four-year public schools, according to the College Board. Expenses on top of that include room and board, books and transportation.
Economists have long noted that a bachelor’s degree tends to pay off with a lifetime of higher earnings. Yet, as borrowers rack up $1.16 trillion in student loans and the sticker price of top private colleges reaches a quarter of a million dollars over four years, some are questioning that assumption.
New college graduates start out earning $5,000 to $6,000 more than high school graduates, and the gap grows to $25,000 after 15 years, the data show. Students who pay $9,000 per year for college can break even in nine years, while annual tuition of $45,000 can be recouped in 17 years.
The last recession, the longest and deepest downturn since the Great Depression, was “especially hard on young people” including college graduates. Even so, its aftermath shows the insurance value of a college degree because college graduates have faced unemployment rates about half as high as those with only high school degrees, according to the report.
The jobless rate for high school graduates was 5.4 percent in February while it was 2.7 percent for those with a bachelor’s degree and higher, Labor Department data show.
Education “arms people with the skills to find success,” San Francisco Fed President John Williams wrote in his essay. “From an economist’s perspective, I see the irrefutable data that investing in education is crucial to economic success.”
Williams studied economics at the University of California at Berkeley before earning a masters at the London School of Economics and a doctorate in economics at Stanford University. He succeeded Janet Yellen, a former Berkeley professor, as chief of the bank in 2011, after she joined the Fed board.