It takes half as long to recoup the cost of a college degree today as it did in the 1970s


(Bigstock)

Tuition costs are rising faster than inflation. Many people with college degrees end up unemployed or underemployed. And debt collectors are being criticized for the ways they go after graduates for payments owed.

None of this suggests that college is growing more affordable. But a chart put out by the New York Fed’s Liberty Street Economics blog shows that by some measures, going to college is at least getting more manageable.

During the first four years of college, the investment families make in tuition results in negative cash flow. But once graduates start working and earning money, they begin to see what’s become known as the “college wage premium,” or the difference between what a person with a college degree earns over a someone without one.

While the cost of college has climbed over several decades, the time it takes graduates to recoup the cost of their degrees is falling. As the chart below shows, it takes about half as many years to break even on the cost of a degree as it did in the 1970s. Workers recouped the cost in about 10 years, on average, in 2013, compared to more than 20 years in the late 1970s.


(Federal Reserve Bank of New York)

Still as the writers noted the equation may change when it takes people five or six years to earn a college degree instead of four and not all college graduates will see a bonus equal to earnings. In fact, the main reason the college premium has grown so much is that wages for people who don’t have college degrees are falling.

Most workers are dealing with the reality that wages aren’t keeping up with inflation. Still, the only people making more in real hourly wages when compared to 2000 are workers with college degrees.

Read more:

Bad news: Wages are down for pretty much everyone

Catch Up: How to keep your college freshman from going broke

Retirement mistakes people make at every age

Jonnelle Marte is a reporter covering personal finance. She was previously a writer for MarketWatch and the Wall Street Journal.
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Jonnelle Marte · September 2