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Is college still worth it?

Re-examining the college premium

A recent symposium held by the Center for Household Financial Stability at the St. Louis Fed looks at the question of whether the college premium is still increasing and positive, using new data from the Fed’s Survey of Consumer Finances. On an absolute level, college graduates earn more than high school graduates, as shown in the graph above. This is consistent with the understanding that the benefits of a college education are greater than the costs.

If we look at the college premium, we can see that it has always been positive, indicating that there is a positive benefit of graduating with a bachelor’s degree. This graph shows that, at the end of the first quarter of 2018, college graduates received weekly wages that were 80 percent higher than those of high school graduates.

However, there’s more to this story. Recent research shows that the college premium may or may not be very strong depending on birth year, family, and other inherited characteristics. When looking at the wealth premium instead of just the income premium, the college premium was weak for all races and ethnicities in the 1980s cohorts, whereas the college premium exists for cohorts in earlier decades. A potential reason for this result is the high and rising cost of college. Over the past decade, we see an increase in the dollar amount of total outstanding student loans per total number of college graduates in the labor force, reaching almost $27,000 per college graduate available for work at the end of the first quarter of 2018. High levels of student debt may affect the ability to accumulate wealth, resulting in the declining college wealth premium. This is just one of the reasons for further investigation into the college premium, rising tuition costs, and how education influences economic well-being.

How these graphs were created: For the first graph, search for “wages bachelor’s degree” and select the quarterly data series to add to the graph. From the “Edit Graph” panel, go to “Add Line” and search for “wages high school” and select the corresponding series. To create the second graph, use the same steps to get to the “wages bachelor’s degree” series. Then under the “Customize data” section, search for “wages high school” and select the series. Then enter in the formula (a/b) – 1 to get the college premium. For the third graph, search for “student loans” and select the series for outstanding student loans. From the “Edit Graph” panel, go to “Customize data,” search for “bachelor’s labor force level” to add to the graph. Then in the formula bar, divide line 1 by line 2 and adjust units to show dollars (i.e., enter a/b*1000000).

Suggested by Suvy Qin and Christian Zimmermann.

View on FRED, series used in this post: LEU0252917300Q, LEU0252918500Q, LNS11027662, SLOAS

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