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College is still a good investment — for now

College is still a good investment — for now

Despite falling wages and rising tuition costs, the value of a college degree is still unquestionably high, a new report shows.

A college degree today is worth $272,692 in lifetime wages — more than three times its value in the 1980s ($80,000) and more than double its value in the 1970s ($120,000), researchers from the Federal Reserve Bank of New York foundAt its highest point, in 2001, the net value of a college degree was $338,000, according to raw data from the report.

But the Great Recession, which brought widespread underemployment and record-breaking student loan debt for college graduates, has greatly slowed that growth spurt. The value of a college degree has fallen 11% since 2007.

Source: NY Fed

That $272,692 figure is what the Fed calls the “net present value” — the cost of college (tuition and fees) combined with the extra wages a college graduate can expect to earn over a 40-year period, compared with someone who graduates with only a high school diploma. To account for inflation, they calculated the NPV using a 5% discount rate, which therefore offset some of the wage increases college graduates receive later in their careers.

The biggest reason college is still valuable is the fact that wages and job prospects for high school graduates are so low. College graduates earn 21% to 60% more than people who didn’t make it past high school. A four-year college graduate earns about $64,500 on average out of school and a two-year degree holder earns $50,000, while those with just a high school diploma earns $41,000.  

There's one caveat, however — underemployment. An estimated 44% of people who graduated during the Great Recession are employed in jobs that don't require a college degree, according to a recent report by the Economic Policy Institute. Chronic unemployment can lead young people to earn less over their lifetime than people who graduated into more robust economies.

And as the Fed report notes, wages for college graduates have fallen by 10% since 2000, while wages for high school graduates have fallen by nearly 8%.

Source: NY Fed

There's at least one more silver lining: The Fed found it takes much less time to recoup the costs of a bachelor’s degree today than it did a couple of generations ago — about 10 years compared to the 20-plus years it took people in the 1970s and 1980s.

Not every college grad wins

Not every college degree holder is a winner, though. What students choose to study and for how long can factor heavily into their overall return on investment. A June report by the New York Fed found that engineering majors can expect to see a 21% return on their college investment, while someone studying education would see only a 9% return.

Source: NY Fed

Here are some resources to help determine the value of a college degree:

Payscale’s 2013 College ROI rankings

The U.S. Dept. of Education’s College Affordability Center

CFPB’s “Paying for College”