College graduates may be taking on historically high debt burdens to finance their educations. But it will take them far less time to get a return on that “investment” than it took their parents’ generation.
That’s the conclusion of new research from the Federal Reserve Bank of New York. Researchers there estimate someone earning a bachelor’s degree in 2013 will need 10 years to recoup the entire cost of that degree. Those who earned a bachelor’s in 1983 needed 23 years to do so.
That’s the good news. The bad news is that the shift has a lot to do with the plight of those who never went to school, rather than simply the higher wages of college graduates.
The Fed first had to calculate the cost of a bachelor’s, a sum that includes direct costs and “opportunity” costs. Direct costs are tuition and fees. “Opportunity” costs are foregone wages that students would have earned had they worked those four years (or three, or five) instead of going to school.
The New York Fed, using data from the federal government and the College Board, pegs the total cost of a bachelor’s degree in 2013 at $122,000 ($26,000 in net tuition and fees over four years; roughly $96,000 in foregone wages).
Researchers then calculated the value of a bachelor’s degree by calculating how much more graduates earn, on average, than those who never graduated, or the “wage premium.”
So the chart above reflects the number of years that wage premium would take to pay off the total costs of earning a bachelor’s.
The chart seems counterintuitive given that wages of college grads have been stagnant while tuitions and debt loads have climbed. But the New York Fed researchers conclude the main driver is the weak earnings of high school grads.
“The primary reason is that the wages of high school graduates have also been falling, reducing the opportunity costs of going to school and keeping the college wage premium near its all-time high,” the researchers, Jaison R. Abel and Richard Deitz, said in a blog post.
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