Three Scary Facts About College and Money

Going to college is terrifying for various reasons. There are beer-soaked dorms, peers jumping off roofs for fun, and dining hall meals. To that list, the Federal Reserve Bank of New York adds three items, all related to your financial future.

On the question certain collegians may be pondering around this time of year—whether it’s worth pursuing a degree at all—the New York Fed is unequivocal. A four-year college education nets the average graduate a higher salary than an associate’s degree or high school diploma, according to data the central bank released this week. Investing in a cap and gown also pays off in half the time that it used to: The typical grad recoups the cost of going to school—including four years of lost wages—in 10 years.

But the data offer some less uplifting news about the value of a college degree.

Jaison R. Abel and Richard Deitz
1. Not all graduates make a winning bet. Most people can leave college expecting to make at least 50 percent more than less educated people. Last year, college graduates earned $48,000 on average, compared to $25,052 for high school graduates, according to a Wall Street Journal report.

But for a quarter of all grads, the pile of debt and years of life invested in the degree came with no such payoff. This slice of students earned no more than $27,000 last year, the data showed, not much more than what people made if they quit school after grade 12. And those people didn’t pay a college’s average $6,550 bill (as tabulated by the New York Fed).

“Once the costs of attending college are considered, it is likely that earning a bachelor’s degree would not have been a good investment for many in the lowest 25 percent of college graduate wage earners,” wrote New York Fed researchers Jaison R. Abel and Richard Deitz.

Jaison R. Abel and Richard Deitz

2. College kids aren’t getting degree-worthy jobs. Nearly half of all recent college graduates are employed in positions that don’t require a college degree, according to the data. The New York Fed calculated that rate by analyzing how many grads had jobs that half their colleagues said in a government survey did not need to be filled by someone with a bachelor’s degree. (Anthony Carnevale, who leads the Georgetown Center on Education and the Workforce, told the Wall Street Journal that the definition is too narrow.)

The researchers say that even if college alumni aren’t putting their degrees to work, they are making money doing “good non-college jobs,” as electricians or dental hygienists, for example. Since last year, more grads are landing blue collar jobs that pay $45,000 or more.

Jaison R. Abel and Richard Deitz
3. Don’t stay in school. At least not for more than four years. The researchers calculated that taking an extra year to finish college would leave students $85,000 poorer than they if they had graduated on time and started working after school. Spending 6 years in college costs a total of $174,000. Becoming a super senior is like taking a hatchet to your bank account: People who spend two extra years in school lose out on 40 percent more of the return on that investment than do peers who proceed at the typical pace.

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