Education

How Long For College To Pay Off?

Posted on Friday, March 18, 2011

BY SCOTT BURNS
DOES IT PAY TO GO TO COLLEGE?
IF YOU CHECK WWW.COLLEGEBOARD.COM, YOU'LL FIND A REASSURING STUDY SHOWING THAT EDUCATION REALLY DOES PAY.
WITHOUT CONSIDERING THE INTANGIBLES, THE STUDY SHOWS THAT EACH ADDITIONAL LEVEL OF EDUCATION DRAWS A HIGHER LIFETIME INCOME.
WHILE THE MEDIAN HIGH-SCHOOL GRADUATE AGE 25 AND OLDER EARNS ABOUT $26,000, THE MEDIAN COLLEGE GRADUATE AGE 25 AND OLDER EARNS ABOUT $42,000. THAT'S AN ANNUAL INCOME PREMIUM OF ABOUT $16,000, OR AROUND 60 PERCENT.
NOT BAD, PARTICULARLY WHEN YOU CONSIDER THAT THE DIFFERENCE ALSO ALLOWS YOU TO ESCAPE DOING HEAVY LIFTING.
YES, THE COLLEGE GRAD WILL SPEND YEARS PAYING OFF LOANS. BUT EVENTUALLY THE EARNINGS NET OF LOAN PAYMENTS WILL PULL AHEAD OF THE HIGH-SCHOOL GRADUATE'S. SO, CASE CLOSED. IT MAY HURT TO WRITE THE CHECKS, OR BORROW, BUT COLLEGE PAYS.
WELL, MAYBE NOT.
ACCORDING TO THE COLLEGE BOARD, IT TAKES 14 LONG YEARS BEFORE THE COLLEGE GRAD'S INCOME, NET OF LOAN PAYMENTS, STARTS TO BEAT WHAT THE HIGH-SCHOOL GRAD EARNS. DURING ALL THOSE 14 YEARS, COLLEGE DOESN'T PAY. HIGH SCHOOL PAYS.
THE REAL QUESTION IS NOT WHICH CHOICE PAYS ON AN ANNUAL BASIS, BUT WHICH CHOICE PAYS ON A LIFETIME BASIS? WHICH CHOICE PERMITS A HIGHER LIFETIME LIVING STANDARD — A QUESTION THE BOARD CONVENIENTLY DOESN'T ASK OR ANSWER.
THE ANSWER DEPENDS ON THE COSTS OF BORROWING AND THE AMOUNT YOU NEED TO COVER. TODAY'S STUDENT-LOAN RATES ARE REALLY HIGH IF YOU NEED TO COVER THE FULL RIDE.
AND THE PRICE TAG FOR ATTENDING COLLEGE IS ASTRONOMICAL. THE COLLEGE BOARD APPROACH TO EVALUATING THE ECONOMIC VALUE OF A COLLEGE EDUCATION MAY OVERSTATE THE BENEFITS. IF YOU TAKE A CONSUMPTION-SMOOTHING APPROACH, WHICH YOU CAN DO WITH FINANCIAL-PLANNING SOFTWARE SUCH AS ESPLANNER, YOU CAN SEE HOW THE COST OF HIGHER EDUCATION INTERACTS WITH FACTORS SUCH AS YOUR LIFETIME TAXES, SOCIAL SECURITY BENEFITS AT RETIREMENT, LOAN REPAYMENTS, ETC. AND YOU CAN DO IT ALL IN DOLLARS OF CONSTANT PURCHASING POWER.
ECONOMIST LAURENCE KOTLIKOFF AT BOSTON UNIVERSITY, THE PRIME MOVER BEHIND THE CONSUMPTION-SMOOTHING SOFTWARE, EXAMINED THE COST OF BORROWING TO ATTEND A PRIVATE COLLEGE. HE FOUND A NUMBER OF FACTORS REDUCE THE ACTUAL ECONOMIC BENEFIT:WHEN YOU EARN MORE MONEY, YOU PAY MORE TAXES AND YOU PAY AT HIGHER RATES.
• WHEN YOU EARN MORE MONEY, YOU'LL ALSO GET LESS BANG FOR YOUR BUCK FROM SOCIAL SECURITY. LOWER-INCOME WORKERS RECEIVE A MUCH HIGHER BENEFIT AS A PERCENTAGE OF THEIR EARNINGS THAN HIGHER-INCOME WORKERS BECAUSE SOCIAL SECURITY BENEFITS ARE MORE PROGRESSIVE THAN THE INCOME TAX.
• WHEN YOU ARE ELIGIBLE FOR MEDICARE, YOU'LL BE HIT WITH THE SAME PROGRESSIVITY. STARTING THIS YEAR, MEDICARE PREMIUMS ARE KEYED TO HOUSEHOLD INCOME. SO YOU'LL PAY MORE FOR THE SAME BENEFITS IF YOU EARN MORE BY GETTING A COLLEGE EDUCATION.
• FORGOING FOUR YEARS OF EARNING POWER WHILE IN COLLEGE ON BORROWED MONEY NEARLY EVENS THE PLAYING FIELD.
KANYE WEST'S DEBUT ALBUM, "THE COLLEGE DROPOUT," WHICH CAME OUT IN 2004, WAS A CONCEPT ALBUM. THE TITLE REFERRED TO WEST, THEN 26 YEARS OLD AND ALREADY A SUCCESSFUL HIP-HOP PRODUCER. THE LYRICS POINTED OUT THAT MANY OF HIS PEERS WHO HAD FINISHED COLLEGE WERE NOT DOING NEARLY SO WELL.
IN ONE MONOLOGUE, HE GIVES HIS TAKE ON THE CAREER LADDER FOR COLLEGE GRADUATES AT THE GAP: ENTRY-LEVEL POSITION, FOLLOWED BY KISSING UP TO THE BOSS, FOLLOWED BY A PROMOTION TO SECRETARY'S SECRETARY. "AND BOY IS THAT GREAT," HE SAYS. "YOU GET TO TAKE MESSAGES FOR THE SECRETARY WHO NEVER WENT TO COLLEGE."
I'LL CONFESS THAT I'M NOT ONE OF THE 2.5 MILLION PEOPLE WHO HAVE BOUGHT THE ALBUM. I WAS INTRODUCED TO IT WHEN I WAS GIVING A TALK TO SOME COLLEGE STUDENTS A COUPLE OF YEARS AGO, AND ONE OF THEM ASKED WHETHER WEST WAS RIGHT THAT A COLLEGE DEGREE HAD BECOME OVERRATED.
AFTER ALL, EVEN COMPUTER PROGRAMMERS FEAR OUTSOURCING THESE DAYS, AND RECENT RAISES FOR COLLEGE GRADUATES HAVE BEEN MEAGER. YET BECAUSE ECONOMISTS STILL INSIST EDUCATION IS THE KEY TO PROSPERITY, THE DISCUSSION OFTEN FEELS LIKE A MUDDLE.
FORTUNATELY, THOUGH, THERE HAS BEEN AN ENORMOUS NATURAL EXPERIMENT ON PRECISELY THIS SUBJECT OVER THE LAST FEW DECADES. IN THE EXPERIMENT, ONE BIG GROUP OF AMERICANS HAS BECOME VASTLY MORE EDUCATED, WHILE ANOTHER GROUP HAS NOT. THE TWO HAVE CREATED AN EXCELLENT CASE STUDY.
FOR THE SAKE OF SIMPLICITY, LET'S REFER TO THE FIRST GROUP AS "WOMEN" AND THE SECOND AS "MEN."
FROM THE FOUNDING OF THE FIRST AMERICAN (ALL-MALE) COLLEGES IN THE 17TH CENTURY UNTIL JUST A FEW DECADES AGO, MEN RECEIVED FAR MORE EDUCATION THAN WOMEN. BUT THE TWO SEXES HAVE NOW SWITCHED PLACES IN A REMARKABLY SHORT TIME.
DURING THE LATE 1960S AND EARLY 1970S, ABOUT ONE OUT OF EVERY THREE YOUNG MEN GOT A BACHELOR'S DEGREE. IN THE YEARS THAT FOLLOWED, THE SHARE FELL SOMEWHAT, BOTH BECAUSE VIETNAM WAR DRAFT DEFERRALS WERE NO LONGER AN ISSUE AND BECAUSE COLLEGE BECAME MORE EXPENSIVE. IN THE 1980S AND 1990S, THE SHARE ROSE AGAIN.
BUT THE SHIFTS HAVE BEEN FAIRLY SMALL. FOR THE LAST FOUR DECADES, SOMEWHERE BETWEEN 30 PERCENT AND 35 PERCENT OF MEN HAVE GRADUATED FROM A FOUR-YEAR COLLEGE BY THE TIME THEY TURNED 35 YEARS OLD.
THE STORY IS QUITE DIFFERENT FOR WOMEN. IN THE 1960S, ONLY 25 PERCENT RECEIVED A COLLEGE DEGREE. AMONG YOUNG WOMEN TODAY, ALMOST 40 PERCENT WILL END UP WITH ONE. AT ONE COMMENCEMENT CEREMONY AFTER ANOTHER THIS MONTH - BE IT AT BOSTON COLLEGE, SAN FRANCISCO STATE UNIVERSITY OR COLBY COLLEGE IN MAINE - WOMEN IN CAPS AND GOWNS OUTNUMBER MEN.
THE RELEVANT QUESTION IS HOW MUCH OF A RETURN WOMEN HAVE GOTTEN ON THEIR EDUCATION. AND THE ANSWER ISN'T ESPECIALLY SUBTLE. THE RETURN HAS BEEN ENORMOUS.
ARMED WITH COLLEGE DEGREES, LARGE NUMBERS OF WOMEN HAVE ENTERED FIELDS ONCE DOMINATED BY MEN. NEARLY HALF OF NEW DOCTORS TODAY ARE WOMEN, UP FROM JUST 10 PERCENT IN THE EARLY 1970S. IN ALL, THE AVERAGE INFLATION-ADJUSTED WEEKLY PAY OF WOMEN HAS JUMPED 26 PERCENT SINCE 1980.
AND MEN? THEIR PAY HAS INCREASED ABOUT AS MUCH AS THEIR COLLEGE GRADUATION RATE - IT'S UP JUST 1 PERCENT SINCE 1980.
EDUCATION OBVIOUSLY ISN'T THE ONLY REASON. GENDER DISCRIMINATION HAS BECOME LESS PREVALENT IN RECENT DECADES, AND FEMALE COLLEGE GRADUATES TODAY ARE LESS LIKELY THAN THEIR MOTHERS AND GRANDMOTHERS TO CHOOSE MODEST-PAYING JOBS, LIKE TEACHING. THE DECLINE OF MANUFACTURING JOBS, MEANWHILE, HAS DISPROPORTIONATELY HURT MEN. BUT RESEARCH BY FRANCINE BLAU AND LAWRENCE KAHN OF CORNELL UNIVERSITY IN ITHACA, NEW YORK, SUGGESTS THAT, OVER THE PAST TWO DECADES, EDUCATION PLAYED THE BIGGEST ROLE IN NARROWING THE PAY GAP.
THERE ARE TWO STATISTICS THAT I THINK DO A PARTICULARLY GOOD JOB OF CAPTURING THIS POINT. THE FIRST SHOWS THAT THE GAP BETWEEN THE PAY OF MEN AND WOMEN WITH COLLEGE DEGREES HASN'T BUDGED OVER THE LAST 15 YEARS. FULL-TIME FEMALE WORKERS WITH A BACHELOR'S DEGREE MADE 75 PERCENT AS MUCH AS THEIR MALE COUNTERPARTS IN 1992 - AND 75 PERCENT AS MUCH IN 2007.
WOMEN STILL FACE DISCRIMINATION, AFTER ALL, AND THEY'RE STILL MORE LIKELY THAN MEN TO BECOME TEACHERS. MORE WOMEN ALSO CHOOSE JOBS THAT TRADE SOME PAY FOR FLEXIBILITY AND REASONABLE HOURS. (WHETHER THIS IS A GOOD THING, A BAD THING OR NEITHER NEEDS TO BE A SUBJECT FOR ANOTHER DAY.)
YET EVEN THOUGH THE PAY GAP AMONG COLLEGE GRADUATES HASN'T CHANGED, THE OVERALL PAY GAP BETWEEN MEN AND WOMEN HAS CONTINUED TO CLOSE IN THE LAST 15 YEARS. THAT'S BECAUSE SO MANY MORE WOMEN HAVE BECOME COLLEGE GRADUATES AND EARNED THE PAY PREMIUM THAT A DEGREE REALLY DOES BRING. ACROSS THE WHOLE WORK FORCE, FULL-TIME WOMEN MADE 79 PERCENT AS MUCH AS FULL-TIME MEN LAST YEAR, UP FROM 75 PERCENT IN 1992.
TO PUT IT ANOTHER WAY, WOMEN WOULD HAVE MADE ALMOST NO PROGRESS IN NARROWING THE GENDER PAY GAP OVER THIS PERIOD IF THEY HADN'T BEEN SO THOROUGHLY TROUNCING MEN IN THE CLASSROOM.
NYT


Supporting Materials

Comments

1000 characters maximum Your Name:    

By Category

Recommended Sites