Annual Conference May 19 – 22, 2015 St. Augustine, FL

Is college worth it? A Review of Recent Studies On the Value of a College Education Laura Dickerson, Sallie Mae May 2015

Brown Center on Education Policy at Brookings “Is a Student Loan Crisis on the Horizon?” Data collected from the Survey of Consumer Finances Data focuses on households led by adults between the ages of (that are most likely paying off their own student loan debt) Data includes the period of time between 1989 through 2010

Overview of Findings from Brooking’s Report – “Is a Student Loan Crisis on the Horizon ” On average, increases in lifetime incomes among households with student loan debt more than offset the increases in borrowing Over the last 30 years, the increase in lifetime earnings associated with earning a bachelor’s degree has grown by 75%, while costs have grown by 50% In 2012, Bachelor’s degree recipients who took out a student loan, accumulated an average debt of $26,000, which is 20% higher than it was 10 years prior In 2011, college graduates ages earned $12,000 more per year than high school graduates in the same age group and had employment rates 20% higher Media reports of students with debt in excess of $100,000 have garnered a great deal of public attention, when in actuality, only 4% of student loan balances were greater than $100,000

Trends in Debt Overtime Of those households with debt, the mean debt was $5,810 in 1989 and increased to $17,916 in 2010 The share of young US households with education debt more than doubled, from 14% in 1989 to 36% in 2010 * Based on households age with educational debt (include those who started but did not complete bachelor’s degree Brookings – Is a Student Loan Crisis On the Horizon

Distribution of Debt 58% of borrowers had balances less than $10,000 in 2010, compared to 84% of borrowers in 1989 In 2010, 23% of borrowers had balances that exceeded $20,000 compared to 6% in 1989 In 2010, 7% of borrowers had balances that exceeded $50,000 compared to 2% in 1989 Brookings – Is a Student Loan Crisis On the Horizon

Average Debt By Educational Attainment The average amount of debt for borrowers with a bachelor’s degree has grown 162% since 1989 The average amount of debt for borrowers with a master’s degree has grown 311% since 1989 From 2007 to 2010, the average amount of debt for borrowers with a bachelor’s degree declined by 9% while those with a master’s increased by 41% Brookings – Is a Student Loan Crisis On the Horizon

Payment-to-Income Ratio The average payment-to-income ratio declined from 15% in 1992 to 7% in 2010 Average repayment term increased to 13.4 years in 2010 from 7.2 years in 1992 In 1992 the average Federal student loan rate was 8.3% but declined to 5.5% in 2010 The average monthly payment declined by 46% between 1992 and 2010 while the average monthly income increased by 24% Brookings – Is a Student Loan Crisis On the Horizon

Incidence of High Payment-to-Income Ratios Between 2007 and 2010 PTI increased, however, in the long-term PTI ratios declined. Brookings – Is a Student Loan Crisis On the Horizon

Federal Reserve Current Issues in Economics & Finance “Do the Benefits of College Still Outweigh the Costs” Data collected from the Federal Reserve Bank of New York and the Current Population Survey Data focuses on full-time workers ages who have obtained a bachelor’s degree Data includes the period of time between 1970 through 2013

Overview of Findings from Federal Reserve – “Do the Benefits of College Still Outweigh the Costs” Investing in a college education continues to remain a solid investment even with the rise in tuition, decline in wages and the fact that college graduates are struggling to find good jobs. While the past decade has been a challenging time for college graduates, those with less education have struggled even more. The rate of return for a bachelor’s degree averaged about 9% during the 70’s, nearly doubled to 16% in 2001 and has remained at about 15% for the past decade.

Average Annual Wages by Education Between 1970 and 2013 as a whole, those with a bachelor’s degree earned about $64,500 per year, while those with a high school diploma earned only $41,000 annually. Thus, those with a bachelor’s degree tend to earn 56% more than high school grads. Between 2001 and 2013, the average wage of workers with a bachelor’s degree declined by 10.3%, whereas the average wage of workers with a high school diploma only declined by 7.6% However, even with the wage decline, those with a bachelor’s degree earn a 75% wage premium The decline in wages has been largely driven by the recent recessions Federal Reserve – Do the Benefits of College Still Outweigh the Costs? *The shaded areas indicate periods of recession

Average Annual Wages by Education Over the 4 year period that is typically required to earn a bachelor’ s degree, a student would have paid $26,000 in tuition and would have forgone nearly $96,000 in wages. Thus, the total economic cost of a bachelor’s degree was $122,000. Despite entering the work force at a later age though, workers with a bachelor’s degree earn over $1 million more than high school graduates during their working lives Federal Reserve – Do the Benefits of College Still Outweigh the Costs? (forgone wages)

Rate of Return for a Bachelor’s Degree Federal Reserve – Do the Benefits of College Still Outweigh the Costs? The Federal Reserve utilized the costs and benefits to calculate the rate of return. Essentially, this calculation weighs the costs against the benefits of an investment, and accounts for the fact that both the costs and benefits accrue over time. The rate of return for a college degree varies across majors In general, majors providing technical training (quantitative and analytical skills), earned the highest return Those majoring in liberal arts, hospitality and education all have below average returns Even for those that are underemployed, the overall rate of return is still in double digits

College Graduates Who Are Underemployed College graduates who find themselves underemployed upon graduation are unlikely to remain underemployed for their entire working life. Still, about 30% of those who obtain a college degree do spend much of their careers in jobs that typically do not require a bachelor’s degree Federal Reserve – Do the Benefits of College Still Outweigh the Costs?

National Center for Education Statistics “Baccalaureate and Beyond” Data focuses on the employment outcomes of bachelor degree recipients approximately 4 years after they completed their 07/08 degrees Approximately 17,110 students were determined to be eligible for the study Eligible students were those who had enrolled at an institution that was eligible to participate in Title IV federal student aid programs and was located in one of the 50 states, DC, or PR and had completed requirements for a bachelor’s degree between July 1, 2007, and June 30, 2008

Overview of Findings from NCES – “Baccalaureate and Beyond” Employment and enrollment status Eleven percent of 07/08 bachelor’s degree recipients were combining employment while continuing their education in 2012, 6% were exclusively enrolled in school, 69% were exclusively employed, 7% were unemployed (looking for work), and 8% were out of the labor force (not looking for work). Of the 69% who were exclusively employed, 85% worked in one full-time job, 8% worked in one part-time job, and 8% had multiple jobs. Employment Statistics for those who held full time jobs (were not enrolled) On average, 07/08 bachelor degree recipients have held two jobs in the 4 years since graduation. On average, 07/08 bachelor degree recipients were employed for 84% of the months that elapsed between their graduation in 07/08. On average, 07/08 bachelor degree recipients worked an average of 41 hours per and earned and average annualized salary of $52,200.

Conclusion While all three studies provide different talking points, the conclusion is the same in that the benefits of a college degree outweigh the costs College graduates tend to earn more annually than their high school counterparts Even with the increase in tuition, the payment to income ratio has remained relatively flat over the past few years 2 of the 3 sources were conducted by Federal entities, whereas the third source was conducted by an independent, nonpartisan entity. MKT9781