Skeptical about the four-year college degree? It is always your best bet for making money.
The backlash against college as a common stop on the road to adulthood has intensified over the past decade. Critics say four-year degree programs burden most students with five-figure debt without a clear path from class to career.
Almost half (46%) of all families surveyed in November and December 2020 by Gallup for the Carnegie Corporation of New York said they would prefer their children to attend alternative institutions to four-year-old institutions – even in the absence of financial barriers.
But when you compare the value of a four-year degree with other degrees – a high school diploma, certificate programs, and associate’s degrees – it still gives workers an edge in the workforce and leads to higher lifetime incomes, on average.
BACHELOR DIPLMS ARE GENERALLY A GOOD INVESTMENT
If a college degree is an investment, it’s a good investment, according to the New York Federal Reserve. The annual return on a typical four-year degree is around 14%, he calculates, well above the threshold for “good” returns for stocks (around 7%) and bonds (3%). .
In dollar terms, bachelor’s graduates will earn on average about $ 78,000 per year, compared to a high school graduate who receives about $ 45,000 per year, according to 2019 data from the New York Federal Reserve.
However, “on average” does not mean that the return on your education, or the premium on college earnings, will always be a gain. Where you go to school, how much debt you have, what you study and where you live after school all help determine your return. Many of these factors are influenced by your race, ethnicity, and gender.
YOUR ABILITY TO REPAY DEBT AFFECTS THE VALUE OF YOUR DEGREE
Student loan debt is hard to avoid and even harder to pay off. College costs increased 117% from 1985-86 to 2018-19, according to federal data. Wages, meanwhile, have not kept pace, increasing only 19% over the same period, according to the Federal Reserve Bank of St. Louis.
However, loans remain the primary means for families without wealth to obtain college degrees. To make your degree worth it, you need to earn enough to justify it. That means having debt that won’t put you under water – a manageable student loan payment is about 10% of your after-tax discretionary income.
To get the best return and be able to repay debt, graduation is crucial – many defaulting borrowers will have debt but no degrees.
“It’s the worst case scenario – you incur some of these costs but with very, very little benefit,” says Jonathan Rothwell, senior economist at Gallup.
REQUEST FOR YOUR BIG BUSINESS
What you study in school will affect the type of job you can get, your income, and your ability to pay off your debts.
Mid-career average earnings are highest among those with a bachelor’s degree in fields such as science, technology, engineering and math, or STEM ($ 76,000), business ($ 67,000) and health ($ 65,000), according to a 2015 data report from Georgetown University’s Center for Education and the Workforce.
The same report found the lowest mid-career median earnings among those with a bachelor’s degree in fields such as the arts, humanities, and liberal arts ($ 51,000), as well as teaching and teaching roles. service such as social work ($ 46,000).
To estimate income, graduation rates, typical student debt, and other factors at individual schools, use the Department of Education’s College Scorecard tool. You can search and compare income as well as debt by field of study.
WHERE YOU LIVE AFTER OBTAINING YOUR DIPLME ALSO ACCOUNTS
Where you live after you graduate also affects its value, according to the results of a May 2020 study for the Thomas B. Fordham Institute, a conservative nonprofit think tank.
“In general, college degrees are a good investment, but the return in terms of cosmopolitan areas is phenomenal,” said John Winters, associate professor of economics at Iowa State University, who conducted the study.
In cities, bachelor’s degree holders earn an average of $ 95,229, an 86.2% premium over a worker with a high school diploma, and a 55.7% premium over a high school graduate. holder of an associate’s degree.
Winters says this is mainly because cities have a higher concentration of jobs in fields that often require workers to have four-year degrees, such as technology, finance and marketing. Workers in these fields earn higher wages, resulting in a better return on investment for degrees.
However, Winters’ findings also mean that having a four-year degree is less essential if you want to live in a smaller metropolitan or rural area. Bachelor’s degree holders in non-urban areas have an average income of $ 67,893, which places their salary at a 46.4% premium over high school graduates and a premium of 29.6% compared to holders of an associate degree.
OBTAINING THE DIPLME DOES NOT GUARANTEE EQUITY
In some ways, a college degree can exacerbate income and racial inequalities, such as student debt and the ability to repay that debt, says Marshall Anthony Jr., senior policy analyst at the Center for American Progress, a research organization on public policies.
“A college degree usually doesn’t work the same for everyone,” says Anthony
Black borrowers tend to take on more debt – about $ 25,000 more, on average, than white borrowers, according to federal data.
In 2016, among those with a bachelor’s or higher degree, full-time, full-year Asian workers aged 25 to 34 had higher median annual earnings ($ 69,100) than their white peers ( $ 54,700) and median incomes for both racial / ethnic groups were higher than those of their black ($ 49,400) and Hispanic ($ 49,300) peers, according to the most recent data available from the National Center for Education Statistics .
Higher debt and lower wages also mean that black borrowers will accumulate more interest over time: four years after graduating from college, black graduates have $ 52,726 in student loan debt compared to graduates. whites at $ 28,006, according to a 2016 study from the Brookings Institution.
This article was provided to The Associated Press by the NerdWallet personal finance website. Anna Helhoski is a writer at NerdWallet. Email: [email protected] Twitter: @AnnaHelhoski.