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College degrees still pay, according to Fed study

The main entrance at Stony Brook University.

The main entrance at Stony Brook University. Photo Credit: Brittany Wait

The value of a college degree far outweighs its ever-rising price, and degrees in technical fields such as engineering, computers and math are a considerably better investment, a new study by the Federal Reserve Bank of New York says.

The study, "Do the Benefits of College Still Outweigh the Costs?" by economists Jaison R. Abel and Richard Deitz, examines whether the up-front cost of college pays off, even as tuitions spiked and job prospects and wages plummeted in recent years.

"While it might seem as if the value of a college degree has declined because of falling wages and rising tuition, we show that this is actually not the case," the authors said. "Instead, after climbing impressively between 1980 and 2000, the return on a college degree has held steady for more than a decade at around 15 percent, easily surpassing the threshold for a sound investment."

The Fed study, which looked at data from 1970 through 2013, identified the best degrees for the money, using as a benchmark the 7 percent average return on investments in the stock market.

At the upper end, engineering majors realize a 21 percent return on their investment, math and computer majors reap 18 percent returns and business majors cull 17 percent back.

Those who major in social sciences, technologies and communications garner 15 percent returns, liberal arts majors 12 percent and leisure and hospitality majors pull 11 percent.

Education majors with only a bachelor's degree came in last with 9 percent return, but even that level of performance beat the stock market standard, making it still a good investment, the authors said.

The study found that college graduates earn an average of $64,500 yearly, while associate degree holders earn $50,000 and high school graduates earn $41,000.

The authors cited another study that showed that people with a college degree earn more than $1 million more in wages over their working careers than those who only have a high school diploma, and associate degree holders earn $325,000 more.

"Thus, over the past four decades, those with a bachelor's degree have tended to earn 56 percent more than high school graduates, while those with an associate degree have tended to earn 21 percent more than high school graduates," the study said.

Student loans don't offset the benefit, the study said, because the money borrowed is deferred for payment at a later date and the interest is far lower than the return on the investment in an education.

Heidi Shierholz, an economist at the Washington-based Economic Policy Institute who has studied wage stagnation, said the Fed study dovetails with others demonstrating the value of a college education. But she added that the wage sluggishness that prompts the dilemma of whether someone should go to college is partly due to declines in union membership.

The Fed study did not factor in unionization.

Unionized workers tend to earn more through collective bargaining, Shierholz said, and their gains also increase wages and benefits for nonunionized workers. "It's a really significant factor in the stagnating wages for the vast middle of the wage distribution," she said, attributing much of the growing gap between wages earned and the growth in the economy since the 1970s to the loss of union positions.

A Pew Research Center analysis cited Bureau of Labor Statistics figures showing that in 2013, 11.3 percent of wage and salary workers belonged to unions, a drop from 20.1 percent in 1983.

Happy returns

A Federal Reserve Bank of New York study identifies the value of a bachelor's degree by specific fields of study, using as a benchmark the 7 percent average return on investments in the stock market. The study examined data from 1970 to 2013.

Source: Federal Reserve Bank of New York


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