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Is the Degree Worth it?

   by Chris Farrell                                                                                                        September 2011

All right, take out your No. 2 pencils.

When it comes to a college education:
   a. A record number of young adults are applying
   b. Only half of undergraduates get their degree in 6 years
   c. Both of the above

Students are borrowing more to pay for college because:
   a. College costs have risen faster than the consumer price index
   b. Family incomes have stagnated
   c. Both of the above

College graduates earn:
   a. About $23,000 more than their high school degree-only peers
   b. Wages that are stagnant to down over the past decade
   c. Both of the above

Go to the head of the class if you answered "c" to all three questions.

College is controversial in America. If you want to spark a fierce discussion at a neighborhood barbeque or during a lunch break at work, ask why college costs so much. The price tag for college sheepskin keeps spiraling higher, with tuition and fees increasing at about two times the overall rate of consumer price inflation in recent decades. For example, the average tuition and fees alone for attending an out-of-state public university for the 2010-11 school year are $19,595 and $27,293 for a private nonprofit college. The comparable price tag in 1995/96 was $4,020 and $17,460. You can fan the flames of discussion by bringing up the confusing intricacies of the federal financial aid system.

Chris Farrell

You'll really get folks going by questioning the worth of spending at least four years and thousands and thousands of dollars earning a college diploma. It's a hot topic in the media, among book publishers and think tanks, and on blogs. The dominant posture appears to be increasing skepticism and the main reason is simple: The economic rewards from a costly college degree seem increasingly doubtful. Specifically, wages of young college graduates have been stagnant to down over the past decade. Job offers have been scarce ever since the economy sank into the Great Recession toward the end of 2007. Students and their parents are borrowing more than ever. If that weren't enough, forecasters worry that the job prospects of college-educated workers could shrink as they are replaced by sophisticated software programs linked though global communication networks.

The current and future economic and financial pressures on young college graduates are worrisome. Parents and their students should pay closer attention than ever before to the total cost of attending college, especially student loans. The nation's colleges and universities should break down the many barriers to acceptance and graduation, most importantly for students from low-income families. It's disturbing to hang out in a coffee shop and watch 20-something college graduates who majored in English, art history, and similar subjects zapping off resumes and swapping job tales with friends on how they plan to earn some money from a brief stint as an office temp and a few weeks at a retail store.

That said, the current fad for totting up a handful of negatives and quickly dismissing the worth of a college degree is wrong. The unmistakable message from the turbulent experience of recent years is that postsecondary education - from a community college certificate to a B.A. to an M.B.A. - remains as valuable as ever, if not more so. Put somewhat differently, postsecondary education remains a necessary, even if not guaranteed, ticket into a middle class job and lifestyle.

"Step back for a minute," says Terry Fitzgerald, senior economist at the Federal Reserve Bank of Minneapolis. "If I am talking to a 17-year-old, am I really going to tell her, 'Don't go to college?' No!"

The job market is still sending out a signal that a college education pays despite the disappointing experience of recent years. For instance, the latest figures from the Bureau of Labor Statistics show an unemployment rate of 4.3 percent for college graduates and above, 25 years and older. The comparable figure for workers with some college or an associate's degree is 8.2 percent, high school graduate 9.6 percent, and high school dropout 14.3 percent. Those with a college education are faring far better than their peers with less education.

Incomes for most employees are flat at best and it's a rare worker that expects a hefty pay raise anytime soon. Nevertheless, college graduates' paychecks are fat compared to everyone else's. According to the Census Bureau, in 2009 the median earnings of a male college graduate 25 years or older with only a B.A., working full-time, was $62,444. His female peer earned $46,832. The median earnings of those with an associate's degree (typically from a community or technical college) were $50,303 and $37,267, respectively. That's still significantly higher than the $39,478 and $29,150 for men and women high school-only grads and the $28,023 and $21,226 for those without a high school diploma.

The market isn't always right - far from it. (Dot.com bubble anyone? How about boom and bust in homes?) Nevertheless, the market is putting a favorable valuation on the college experience. The worth of higher education shows up in the widening earnings gap between workers with a college degree or higher and their high school-only peers. The gap between the two groups was about 35 percent in 1980. It swelled to 55 percent in 2009 even though the share of college-educated workers rose from 17 percent to almost 30 percent of the population. Translation: The supply of college-educated workers is falling short of employer demand. Researchers at the Georgetown University Center on Education and the Workforce calculate that the share of jobs requiring postsecondary education has increased from about half in the 1970s to more than three-quarters todaywith more than 52 percent of those jobs requiring a B.A. or higher. For all the controversies over the costs and benefits of a college education, the real job and earnings problems are concentrated among workers with a high school diploma and less.

Those who knock the value of a college education betray a parochial view of the world. They fail to appreciate the way an increasingly integrated global economy and the worldwide embrace of higher education have fed off and reinforced one another, especially after 1960. More than 150 million students are enrolled in higher education around the world, up from about half a million in 1900. Put somewhat differently, the number of students in postsecondary education has gone from a fraction of 1 percent to about 26 percent of young adults. A major factor behind the global phenomenon are companies in the United States, Britain, continental Europe, China, Brazil, South Africa, and elsewhere that trade goods and services worldwide. They need an educated workforce, comfortable at analyzing words and numbers, at ease in a global community linked by computers. Universities promote common standards of reason, rationality, and scientific research. Everywhere, a college education is not only becoming a critical certificate for getting a good job, it's tightly linked to shared ideas about personal fulfillment and the good life.

There's much to dislike about college. Opaque pricing. Expensive credentials. Professors who put too little emphasis on teaching young people well and spend too much time on their own research projects. It's also true that the American job machine has dropped into low gear for five turbulent, troublesome years. Nevertheless, despite these deep-rooted problems, a college sheepskin remains the entry exam for the average young adult eager for a middle-class job and lifestyle. It creates for society's major institutionsbusiness, government and nonprofitsworkers with the knowledge and skill to compete in the global marketplace. Taken altogether, the return on investment in college remains compelling.

Chris Farrell is economics editor at APM's Marketplace Money and author of "The New Frugality: How to Consume Less, Save More and Live Better."

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